Nysba Spring 2003 | Volume 14 |No

NYSBA SPRING 2003 | VOLUME 14 |NO. 1 Entertainment, Arts and Sports Law Journal A publication of the Entertainment, Arts and Sports Law Section of the New York State Bar Association

Remarks from the Chair

The year 2003 picked up right Sherman & Flynn; Michael Mellis of Major League where 2002 left off for the Enter- Baseball Advanced Media; and Peter Smith of Hogan & tainment, Arts and Sports Law Hartson. Indeed, the timeliness of their discussion and Section with a fabulous Annual the need for adequate protections on digital media could Meeting. Thanks to the hard not have been underscored more by the fact that less work of Kenny Nick and Ayala than 24 hours after the Annual Meeting program, The Deutsch, we hosted a program New York Times ran an article on the front page of its entitled “Practicing in the Gray Business Section revealing that Major League Baseball Areas of Intellectual Property intends to experiment with the Internet distribution of Law: Creative Resolutions to Pro- live video from its games this summer. tecting Your Digital Rights.” For our members who were unable to attend, we are In addition to keynote speaker Bernard Sorkin, pleased once again to offer a transcript of our Annual Senior Counsel of AOL Time Warner, our members were Meeting in this edition. treated to the various perspectives of George Cooke of Our Friday program was not our only event at this Home Box Office; Jonathan Frankel of Swidler Berlin year’s Annual Meeting. We accepted the Intellectual Shereff Friedman; Jeffrey Johnson of Pryor Cashman

Inside “Harry Potter and the Order of the Court” Pennsylvania Woman Sanctioned for Bringing Bad Faith Editor’s Note ...... 3 Infringement Claims ...... 58 Law Student Initiative Winners...... 4 (Jessie Beeber and Edward Rosenthal) The Phil Cowan Memorial Scholarship ...... 5 Star Struck—What to Do When “It” Hits the Fan for Your EASL Annual Meeting Keynote Address...... 6 Celebrity Client...... 60 (Bernard Sorkin) (Lisa M. Fantino) EASL Section Annual Meeting...... 11 Lawyer Assistance Program Can Help Attorneys with Alcoholism and Substance Abuse Problems...... 64 Junior Prom or NBA? A Legal Analysis of LeBron James’ Failed Quest to Enter the NBA Draft Prior to Graduating The Need for Paranoia in Drafting Entertainment Contracts...... 65 from High School ...... 38 (Michael L. Baroni) (Christopher B. Abbott) Any “Copyright” for Litigants?...... 68 Defining Artists’ Rights and Alternatives: (Alan J. Hartnick) Ownership of the Creative Message ...... 48 The New German Law on Copyright Contracts— (Damien Granderson) Is German Law Going Socialist? ...... 70 Whose Right Is It Anyway? Captain America Smashes (Alexander R. Klett) Through to Preserve an Author’s Right to Terminate Pro Bono Update ...... 74 a Copyright Grant ...... 53 (Elisabeth K. Wolfe) (Ross J. Charap and Faith Wu) Upcoming VLA Programs ...... 77 Property Law Section’s invitation to co-host its after- I want to welcome a new member to our Executive noon program earlier that week, in which Jay Flemma Committee and congratulate a current member on her took a lead role by organizing two panels. The first was new position. First, our newest member is our CLE a review of the law and policy of the Supreme Court’s Chair, Cameron Myler. Cameron, a four-time U.S. Win- decision in Eldred v. Ashcroft,1 moderated by Jay Kogan, ter Olympian, not only plans to assist our Section in Chair of our Literary Works and Related Rights Com- ensuring that our members receive CLE credit for as mittee. The second was a discussion of the ramifications many of our programs as possible, but is also looking of the recent district court decision in the Tiger Woods forward to working with Ayala, who is Chair of the case against sports artist Rick Rush, concerning Woods’ Committee on Sports, to host programs of interest to rights of publicity and privacy. members who practice in that field. Incidentally, as you may notice from the prior sentence, we have renamed We also co-sponsored a panel discussion and cock- the Committee on Professional Sports to reflect the fact tail reception geared toward introducing young lawyers that many of our members practice in, and many of our to the industry, and provided career advice to those programs relate to, fields other than professional sports. aspiring to make a career in entertainment, arts or sports law. My predecessor, Judith Bresler, spoke on Rosemarie Tully, a member of our Executive Com- that panel, which was a huge success. Our Section is mittee from the 10th District for the past several years, committed to the career development of newer attor- has succeeded Elisabeth Wolfe as Membership Chair. neys, and we hope that those of you who are looking to Elisabeth has made great strides over the past year in gain experience will take advantage of our various pro- reaching out to members of the bar, educating them on grams, receptions and other opportunities to gain con- the benefits our Section offers and, as a result, growing nections, knowledge and experience, such as at our our membership. We look forward to continue growth VLA clinics. under Rosemarie’s guidance. By the time you will have read this, our spring con- With many upcoming events planned—including ference—scheduled for March 28-29 at Doral Arrow- programs, another VLA clinic and other matters of wood Resort in Rye Brook, New York—will have interest such as the Phil Cowan Memorial Scholar- passed so I will wait until the next issue to provide a ship—members should make it a regular practice to report on that. However, as I write this column, I would check our Web site, http://www.nyeasl.org, for news be remiss if I did not express my excitement about the and information. conference and my appreciation for the efforts of Jay Flemma and Kenny Nick in putting together what is Jeffrey A. Rosenthal shaping up to be a true blockbuster event. Endnote

1. ___ U.S. ___, 123 S. Ct. 769 (2003).

GET CLE CREDIT FOR SUBMITTING ARTICLES If you have written an article, or have an idea for one, please contact

Entertainment, Arts and Sports Law Journal Editor Elissa D. Hecker, Esq. The Harry Fox Agency, Inc. 711 3rd Avenue New York, NY 10017 [email protected]

Articles should be submitted on a 3-1/2" floppy disk, preferably in Microsoft Word or WordPerfect, along with a printed original and biographical information.

2 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 Editor’s Note

This issue of the Journal We are also fortunate to have submissions by attor- is launching our Law Stu- neys who were involved with trying and winning the dent Initiative, which is cases about which they write. The first involves an designed to bridge the gap interpretation by the Second Circuit on behalf of cre- between law students and ators of copyrighted works, involving termination the entertainment, arts and rights, contractual agreements and works for hire. The sports law communities and second concerns J.K. Rowling and Scholastic, Inc. in shed light on students’ their defense of the Harry Potter books against an diverse perspectives in these author who fabricated evidence in an attempt to prove practice areas. We were very claims of copyright and trademark infringement. fortunate to have received As you will see from Elisabeth’s Pro Bono Update, quite a number of quality the Pro Bono Committee has been very active. We had submissions, and have our second clinic with VLA on February 12th, which selected two authors as our first published winners. was a great success. Elisabeth will be sending Pro Bono Christopher Abbott, a second-year law student at St. Updates via e-mail to all EASL Section members during John’s University School of Law, writes about LeBron the course of the year, which will outline the involve- James’ failed quest to enter the NBA draft prior to grad- ments of the Committee and how each member can uating from high school. Damien Granderson, a third- participate. We also have an article featuring VLA’s pro- year law student at Albany Law School of Union Uni- grams, as an informational resource for EASL Section versity, has submitted an article about defining artists’ members. rights. As a result of their high-quality submissions, both of these authors will receive a free membership to Finally, please be advised that authors can now get the EASL Section next year, and an opportunity to reach CLE credit from having an article published in the out to EASL Section members with their talent. EASL Journal. To submit an article or letter to the Edi- tor, please contact me at [email protected]. The This issue of the Journal also features what has next deadline is Friday, May 30, 2003. become an annual tradition, the publication of the transcript from the EASL Section’s Annual Meeting that took place in January, for those of you who were unable Elissa to attend, or who would like to refresh your notes as to what was discussed. Elissa D. Hecker is Associate Counsel to The Harry Fox Agency, Inc., licensing affiliate of The This Journal contains several articles that may assist National Music Publishers’ Association, Inc., where practitioners. For example, we have an analysis of the she is involved with legal, educational and policy new German Copyright Act, and how the changes may matters concerning the world’s largest music rights affect U.S. copyright attorneys. There is also an article organization and the U.S. music publishing industry about the need for specificity when drafting contracts trade group. Ms. Hecker is the Vice-Chair of the EASL for entertainment industry clients, and a “what to do” Section. In addition to her membership in the guide for practitioners who represent celebrity clients NYSBA, Ms. Hecker is also a member of The Copy- who do or say things that engender unfavorable media right Society of the U.S.A. and Chair of the FACE Ini- attention. There is also an interesting submission about tiative children’s Web site. protective orders and confidentiality when filing legal briefs.

Get CLE Credit! Next EASL Journal Deadline: Friday, May 30, 2003

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 3 Congratulations to the Law Student Initiative Selected Authors Christopher B. Abbott of St. John’s University School of Law, for “Junior Prom or NBA? A Legal Analysis of LeBron James’ Failed Quest to Enter the NBA Draft Prior to Graduating from High School” and Damien Granderson of Albany Law School of Union University, for “Defining Artists’ Rights and Alternatives: Ownership of the Creative Message”

EASL Section Law Student Initiative EASL has launched an initiative that gives law students a chance to publish articles in a special section that will appear in the EASL Journal and on our Web site at www.nyeasl.org. The Initiative is designed to bridge the gap between students and the entertainment, arts and sports law communities and shed light on students’ diverse perspectives in these practice areas. Free membership to the EASL Section for the following year will be offered to those students whose articles are accepted for publication. This Initiative is unique, as it grants students the opportunity to be published and gain exposure in these highly competitive areas of practice. The EASL Journal is among the profession’s foremost law journals. Both the Journal and the Web site have wide distribution, as the EASL Section boasts almost 2,000 members nationwide. Law school students who have interest in entertainment, arts and/or sports law and who are members of the NYSBA are invited to submit articles. To submit an article, contact Elissa Hecker at [email protected].

4 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 The Phil Cowan Memorial Scholarship

EASL is pleased to announce that The New York each respective law school must submit the top three Bar Foundation has approved the creation of a restrict- papers to the EASL’s Scholarship Committee by June 1 ed fund for contributions to The Phil Cowan Memorial of such year. The Scholarship Committee will determine Scholarship. The Scholarship of $2,500 will be awarded the winner by October 31, and the winner will be on an annual basis in Phil Cowan’s memory to a law announced, and the Scholarship awarded, at the Annu- student who is committed to the practice concentrating al Meeting, which will take place the following January. in one or more of the fields of entertainment, art or The Scholarship Committee and Prerogatives. The sports law. Scholarship Committee is composed of all former Eligible Recipients. The recipient of the $2,500 Scholar- Chairs and the current Chair of the EASL Section. Each ship will be selected each year through a writing com- winning paper will be published in the EASL Journal petition. The writing competition is open to all first- and will be made available to EASL members on the and second-year law students who are members in EASL Web site. The Scholarship Committee reserves the good standing of the EASL Section and who attend a right to submit all papers it receives to the EASL Journal law school anywhere in New York State, Rutgers Uni- for publication and to the EASL Web site. The Scholar- versity Law School (Newark and Camden campuses) or ship Committee also reserves the right not to award a Seton Hall Law School. Scholarship if it determines, in any given year, that no paper submitted was sufficiently deserving. All rights The Competition. Each Scholarship candidate must of dissemination of the papers by EASL are non-exclu- write an original paper on a legal issue of current inter- sive. est in the area of entertainment, art or sports law. The paper should be twelve to fifteen pages in length, dou- Payment of Monies. Payment of Scholarship funds will ble-spaced and including footnotes, in Bluebook form. be made by EASL directly to the law school of the win- The papers should be submitted to designated faculty ner, to be credited to the winner’s account. members of each respective law school. All law schools Donations. The Phil Cowan Memorial Scholarship fund will screen the papers and submit the three best to the is pleased to accept donations. The donations are tax- EASL’s Phil Cowan Memorial Scholarship Committee. deductible. All donations should be by check, and be The Committee will read the submitted papers and will made payable to The New York Bar Foundation. Each make the ultimate decision as to the Scholarship recipi- donation should indicate that it is designated for the ent. Phil Cowan Memorial Scholarship. All donations Deadlines. All students must submit their papers to should be forwarded to The New York Bar Founda- their respective law schools for consideration not later tion, One Elk Street, Albany, New York 12207, Atten- than by April 30 of each year. The screening faculty at tion: Kris O’Brien, Director of Finance.

Did You Know? Back issues of the Entertainment, Arts and Sports Law Journal (2000-2003) are available on the New York State Bar Association Web site. (www.nysba.org) Click on “Sections/Committees/ Entertainment Law Section/ Member Materials/ Entertainment, Arts and Sports Law Journal.” For your convenience there is also a searchable index. To search, click on the Index and then “Edit/ Find on this page.” Note: Back issues are available at no charge to Section members only. You must be logged in as a member to access back issues. For questions, log in help or to obtain your user name and password, e-mail [email protected] or call (518) 463-3200.

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 5 EASL Annual Meeting Keynote Address By Bernard Sorkin

The views presented in this article For one thing, there is ease of do not necessarily reflect the views of copying. Digitalization allows for Mr. Sorkin’s employer or any other per- the making of copies and copies son or entity. from copies in unlimited numbers at very little cost and with no degrada- In his 1966 address, “An Unhur- tion of quality. ried Review of Copyright,” Judge (then Professor) Benjamin Kaplan Secondly, digitized works can be opened by saying, “ . . . [I]t is transmitted over the Internet with a almost obligatory for a speaker to click of a computer mouse. This begin by invoking the ‘communica- close-to-instantaneous delivery can tion revolution’ of our time, than to be on a worldwide basis, including pronounce upon the inadequacies of to countries with little or no ade- the present Copyright Act . . .” Bernard R. Sorkin quate copyright protection. That was 1966. We had by that time, and during the And thirdly, there is the ability to modify—you succeeding decades, gone through many technological might say mutilate—digitized works to the distress of revolutions in the intellectual property area, starting their creators and performers. with Herr Gutenberg’s bombshell, and continuing with Mr. Ralph Oman, as former United States Register photography, sound recordings and photocopying, of Copyrights, put it very well when, in commenting on cable and satellite transmission and videocassettes. developments in digital technology, he said that “. . . What we face today, however, hugely overshadows every plugged-in consumer is a potential author, a in consequence all that went before. The development potential publisher, and a potential infringer—all at of digitalization provides a cornucopia of benefits as once or at different times. Everyone will have the capaci- well as mammoth dangers. One of the consequences of ty to manufacture copies of works of perfect quality. For digitalization has been an outpouring of criticism of many literary works, sound recordings, film and televi- legislation enacted to protect against those dangers; sion, this means demand distribution and packaging criticism not that the Copyright Act is “inadequate,” become a matter of consumer choice.” but that it goes too far in providing protection. In December 1993, after long and arduous negotia- It might be well to set the stage by saying a few tions, what was then called the Uruguay Round of the words about the benefits and dangers. General Agreement on Tariffs and Trades concluded a lengthy “Final Act,” including an Agreement on Trade- Digitalization provides new means of distribution, Related Aspects of Intellectual Property Rights (TRIPs). new platforms for the carriage of entertainment and Quoting a portion of the Administration’s statement, information. New markets are being opened. There are, the Agreement, and will be, new ways for people to obtain, deal with and “play with” entertainment and information; by cre- . . . establishes comprehensive stan- ating multimedia works and by creating and modifying dards for the protection of intellectual audio, visual and audio-visual works. And, extremely property rights in the World Trade important, new ways of using information and making Organization [WTO] member countries. it available in education, most significantly for distance It requires each WTO member country learning. Education is no longer confined to the tradi- to apply the substantive obligations of tional four-wall classroom. Digitalization also eases the the world’s most important intellectual storage and accessibility of encyclopedic materials. property conventions, supplements those conventions with substantial That is a wonderfully bright silver lining to the additional protection, and ensures that cloud I now describe. The very attributes of digitaliza- critical enforcement procedures will be tion that provide so many advantages to content own- available in each member country to ers, to everyone—and they are many and varied—con- safeguard intellectual property rights. nected with the content-owning businesses, and to society at large can, if not adequately dealt with, The inclusion of enforcement provisions was the destroy copyright. critical advance provided for in the TRIPs Agreement.

6 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 Even though the protection of copyright on an One example of the attacks on copyright protection international basis was greatly increased by the ground- was a conference held in May 2002 by The New Ameri- breaking inclusion of intellectual property in the Gener- ca Foundation and Public Knowledge in Washington al Agreement on Tariffs and Trade, it was clear to many under the title “Protecting the Information Commons: that extant copyright laws might not be adequate to New Initiatives to Advance the Public Interest in Copy- protect against some of the uses to which digitized right Law and Digital Infrastructure.” One of the topics works could, without authorization, be put. This con- discussed was “Threats to the Public Domain, “which cern led to agreement among about 160 countries in was described as follows: “A number of new technolo- December 1996 under the aegis of the World Intellectual gies and laws are enabling companies to assert propri- Property Organization, on two treaties, the WIPO etary control over information once considered part of Copyright Treaty and the WIPO Performances and the public domain. This trend is raising new questions Phonograms Treaty. These treaties are currently in about how the public’s stake in these areas will be pro- effect, having been deposited by the requisite 30 coun- tected.” tries. For our purposes here, article 11 of the WIPO Congressman Rich Boucher, the keynote speaker, Copyright Treaty is of particular importance. It pro- spoke of the balance of intellectual property rights as vides that: shifting heavily in favor of creators. According to Con- Contracting Parties shall provide ade- gressman Boucher, the Motion Picture Association of quate legal protection and effective America and the Recording Industry Association of legal remedies against the circumven- America are entertainment industry giants that suc- tion of effective technological measures ceeded in pushing the DMCA through Congress. He that are used by authors in connection characterized the DMCA as giving unprecedented with the exercise of their rights under rights to copyright owners, going beyond mere com- this Treaty or the Berne Convention pensation to giving total control. and that restrict acts, in respect of their Congressman Boucher cited section 1201 as being works, which are not authorized by the the DMCA’s most problematic provision. He said that it authors concerned or permitted by law. indiscriminately criminalizes both legitimate and illegit- The United States ratified both treaties quickly and imate acts by punishing the act of circumvention, even enacted implementing legislation, the Digital Millenni- where such act was in furtherance of a fair use of the um Copyright Act (DMCA). That statute requires the work. Library of Congress to report and make certain recom- The Congressman also complained that section mendations to Congress in connection with issues 1202(a)(2) and (b) limited the so-called “Betamax doc- raised during the legislative debates with respect to the trine” which, according to him, provided that “anytime DMCA. Some of the more interesting and controversial there are substantial non-infringing uses,” the technolo- provisions are those in section 1201, which prohibit gy is legal. overcoming, or dealing in devices that are intended to overcome, technological protections against unautho- Copyright has always been subject to decisional rized access to copyrighted works or unauthorized and statutorily imposed limitations. Although the only exercise of the rights granted by the Copyright Act. limitation set forth in Clause 8, Section 8 of Article I of the U.S. Constitution is that the exclusive right shall be One would think that with the DMCA, our copy- secured for “limited times,” courts very early imposed right law, TRIPs, and the likelihood that the countries the further limitation of the Fair Use Doctrine in order that agreed to the WIPO Treaties will enact satisfactory to accommodate society’s need to use and benefit from implementing legislation, copyright owners would feel an author’s creations. comfortable that their rights would remain secure. Why, then, do I suggest that paranoia might not be inappro- Many courts have recognized the Fair Use Doctrine priate? as one of the most complex and difficult aspects of copyright law. It has well served the needs of criticism, For one thing, there is an itch on the part of many comment, news reporting, teaching, scholarship and people to get hold of copyrighted works for free—in research, to use the words of the statute in which the some cases by using a new technology. As is very fre- doctrine was for the first time codified as section 107 of quently the case, Shakespeare put it best: “How oft the the Copyright Act, enacted in 1976. During the gesta- sight of means to do ill deeds makes ill deeds done.” tion period of that legislation, the education community (King John, Act II) sought expansion of its right to use copyrighted materi- For another thing, there is a pervasive sense that al. The Report of the Committee on the Judiciary of the certain socially desirable activities are entitled to free or House of Representatives, in dealing with section 107 cut-rate copyrighted works.

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 7 pointed out that, “although the works and uses to similar establishments from paying music per- which the doctrine of fair use is applicable, are as broad formance royalties for communicating transmis- as the copyright law itself, most of the discussion of sions to the public. This led to a U.S. defeat before section 107 has centered around questions of classroom the Dispute Settlement Panel of the WTO, which reproduction particularly photocopying.” ruled that the statute violated the U.S.’s obligations under TRIPs. The U.S. is now dealing with Section 110 of the copyright law provides that copy- the problem of complying with the Panel’s ruling righted works may be performed or displayed “. . . by for monetary compensation. instructors or pupils in the course of face-to-face teaching activities of a non-profit educational institution, in a • A court has ruled unconstitutional a Congression- classroom or similar place devoted to instruction . . .” al statute intended to abrogate the immunity According to the House Report, the phrase “in the granted to states and state agencies by the course of face-to-face teaching activities” is intended to Eleventh Amendment insofar as it insulates them exclude broadcasting or other transmissions from an from suit for copyright infringement. outside location into the classroom, whether radio or There have been a number of cases attacking the television and whether open or closed circuit. The DMCA, none of which has thus far succeeded. One of House Report further makes it clear that “. . . nothing in the more famous of these cases brought under section this provision is intended to sanction the unauthorized 1 reproduction of copies or phonorecords for the purpose 1202 was Universal City Studios, Inc. v. Reimerdes, in the of classroom performance or display . . .” Southern District of New York, in which the plaintiff motion picture studios sought and obtained an injunc- The rights granted by section 110 have been tion against those posting DeCSS (a program that expanded by agreements or guidelines among the edu- decrypted the access control technology protecting cation community and a number of trade associations DVDs) or knowingly linking it to other Web sites. The of content owners, and I am sure you are all aware of Court of Appeals for the Second Circuit affirmed, reject- recent discussions concerning possible legislation dealing First Amendment and “fair use” attacks on the ing with distance learning and the fact that the Technol- DMCA, ruling that section 1202(a)(2) protects the ability ogy, Education and Copyright Harmonization Act, of copyright owners to encrypt copyrighted works with known as the TEACH Act, was passed in October 2002 “access” control technology, even when they are pub- and signed into law shortly thereafter. lished and sold to consumers, so that they can be played back only on compliant devices. The TEACH Act amends the copyright law to allow educators at non-profit institutions to transmit, subject Pursuant to section 1201(a)(1)(C) of the DMCA, the to certain restrictions, portions of legally acquired Librarian of Congress conducted a rule-making proce- audiovisual works over distance learning networks, dure to determine whether persons who are users of a without having to obtain permission from the copyright copyrighted work are likely to be adversely affected in owners. their ability to make non-infringing uses of a particular class of works, by the prohibition in section There have also been attacks on copyright protec- 1201(a)(1)(A). Section 1201(a)(1)(D) provides that the tion in the courts and in Congress. Some examples prohibition against circumvention of technological include: measures that control access shall not apply to such • The Copyright Term Extension Act, which users with respect to such works. extended the term of copyright protection by 20 The Librarian, on the recommendation of the Regis- years, and was attacked as unconstitutional in the ter of Copyrights, determined that two classes of works United States District Court in the District of shall be subject to such exemption: Columbia. The district court dismissed the suit and that dismissal was both affirmed by the 1) compilations consisting of lists of Web sites Court of Appeals in a 2-1 decision and by the blocked by filtering software applications; and Supreme Court in a 7-2 decision. 2) literary works, including computer programs • The Copyright Term Extension Act was passed and databases, protected by access control mech- only at a price. Because of a hold put on the pro- anisms that fail to permit access because of mal- posed legislation by Congressman Sensenbrenner function, damage or obsolescence. from Wisconsin, Congress had to agree to passage of the so-called Fairness in Music Licensing Act, They are very narrow classes of works and do not which exempted, depending on their sizes and have much impact on copyright owners. This rule, the kind and number of audio and audio-visual which is set forth in 37 CFR Section 201.40, became devices they have, a number of restaurants and effective on October 28, 2000 and is effective until Octo-

8 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 ber 28, 2003. The statute provides for further rule- by the Supreme Court in Harper & Row Publishers, Inc. v. making proceedings for successive three-year periods, Nation Enterprises,3 that the law will imply a limited and the second of the statutorily triennial proceeding is privilege to use a copyrighted work only where a rea- currently underway. Fifty comments seconding exemp- sonable copyright owner would have consented to the tion of various kinds of works, focusing to a large use. extent on a desire to exempt DVDs from coverage by the statute, have been submitted. The DMCA is considered by some as the bête noir of copyright protection and is the object of very strong In the press and learned journals there are attacks attacks. In considering the place of DMCA in the “copy- on copyright protection and particularly on the DMCA. right balance,” it is necessary to understand, as Con- The DMCA is seen by some as distorting the copyright gress did, the dangers to copyright protection created balance in favor of copyright owners. Some of the by digitalization. The Senate Judiciary Committee attackers charge that copyright owners rely on a rela- expressed this as follows: tively alien notion that copyright is primarily intended not to “Promote the Progress of Science and Useful Due to the ease with which digital Arts,” but, instead, as a statutory confirmation of some works can be copied and distributed purportedly natural monopoly right. worldwide virtually instantaneously, copyright owners will hesitate to make First, it should be common ground that copyright their works readily available on the does not confer a monopoly. Anyone may create the Internet without reasonable assurance same thing, as long as he or she does not copy a copy- that they will be protected against mas- righted work; and anyone may use the idea introduced sive piracy. [The DMCA] provides this in the copyrighted work. protection and creates the legal platform for launching the global digital Secondly, there is reason to believe that such so- online marketplace for copyrighted called “monopoly right” does more than any other fac- works. It will facilitate making avail- tor to “Promote the Progress . . .” Indeed, the Supreme able quickly and conveniently via the Court in Mazer v. Stein2 said: Internet the movies, music, software The economic philosophy behind the and literary works that are the fruit of clause empowering Congress to grant American creative genius. patents and copyrights is the conviction The Senate Judiciary Committee, in recommending that encouragement of individual effort the DMCA for enactment, observed that the provision by personal gain is the best way to that made it illegal to traffic in devices that circumvent- advance public welfare through the tal- ed technological protections was “. . . roughly analo- ents of authors and inventors in “Sci- gous to making it illegal to break into a house using a ence and Useful Arts.” tool, the primary purpose of which is to break into In order to redress that perceived imbalance, some houses.” see the public domain and fair use as important coun- The DMCA is not an unprecedented development. terweights, which they see as endangered by the Congress has previously enacted similar legislation pro- DMCA. tective of copyrights; for example, the Audio Home As to the public domain, the fact is that works do Recording Act, which prohibits the sale of digital audio and will continue to flow into the public domain, albeit recorders that do not prevent serial copying, and the at a slower pace than previously. Moreover, it is at least Cable Communications Act, which prohibits manufac- arguable that the public benefits—that science and the ture or sale of any device that would, without authority, useful arts are promoted—when works continue under decrypt satellite cable programming. copyright protection. In that circumstance, the copy- Will these protections destroy fair use? I suggest right owner has the incentive to undertake the effort not. We must keep in mind that the creator and owner and expense of reproducing, packaging, promoting and of data is almost always in the business of publishing distributing the work, including in the new forms made and/or distributing. There is no other business or other possible by digitalization. incentive for the copyright owner to lock up the data Fair use is also seen as an important “counter- and keep it away from the public. What digitalization weight.” As a matter of fact, many copyright owners in and the DMCA do provide is an opportunity for the the course of creating their works rely on the Fair Use copyright owner to charge various prices for various Doctrine and strongly support it. Moreover, the attacks uses. This has been decried as creating a “pay-per-use” on copyright pay no heed to the principle enunciated society. That criticism can make sense only to people

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 9 who have never ridden in a taxi, gone to a movie or a music album owns the chattel involved and may, under play or chosen at the supermarket between large and the First Sale Doctrine, transfer possession of it freely. small cans of tomato juice. The ability to create such The purchaser may not, however, make additional price differentials would benefit consumers and society copies by virtue of this doctrine. In short, the fact that in general. the tangible medium contains works embodied in digital form does not affect the application of the First Sale A third purported “counterweight” in the “copy- Doctrine. right balance” is the First Sale Doctrine, codified in section 109 of the Copyright Act. In relevant part, section The First Sale Doctrine should not be distorted into 109 provides: a vehicle for permitting unauthorized copying and distribution. As stated above, the doctrine has a particular Notwithstanding the provisions of Sec- function, which is to prevent restraints of alienation of tion 106(3) [the distribution right], the particular “lawfully made” copies by the owners there- owner of a particular copy or phono- of, whether in an analog or a digital world. There is no record lawfully made under this title, social or economic rationale for altering that policy to or any person authorized by such permit unlimited reproduction and distribution of pro- owner, is entitled, without the authority tected works by owners of a single copy. Indeed, any of the copyright owner, to sell or other- such alteration would deal a fatal blow to copyright wise dispose of the possession of that protection. copy or phonorecord. Clearly the “counterweights” to which many point Here the claim is made that the First Sale Doctrine are important. Thus far, at least, the fears expressed by would be eliminated if it were not extended to apply to some that these “counterweights” will disappear have digital transmissions. In order to deal adequately with been largely speculative, whereas the fears expressed the issue, it is necessary to understand the basis for and by copyright owners have manifested themselves in the the limitations of the doctrine. The First Sale Doctrine, real world, as shown by the development of Napster in its origin and in its current statutory existence, has as and its brethren and the hacking of CSS, as well as the its underlying purpose the prevention of using the new developments described above. copyright law to impose price or other conditions on the ability of the owner of a copy of a work to dispose Nevertheless, while I do not believe that paranoia of that copy. It does so in very simple and clear terms, by copyright owners is justified, I do believe that ener- by providing an exception to the right of distribution getic protection of copyright as well as public education granted in section 106(3). It provides no other exception is necessary. I also believe that with intelligence, good- to the rights granted by section 106. In particular, it will and an understanding of the importance that pro- does not provide any exception to the exclusive right of tection of copyright plays in building our society, the reproduction. Moreover, the exception with respect to possibility of paranoia will disappear. the right of distribution is limited to copies “lawfully made under this title.” Endnotes Since under the First Sale Doctrine the copy owner 1. 111 F. Supp. 2d 294 (S.D.N.Y 2000). has only the right to transfer possession of the copy and 2. 347 U.S. 201 (1954). no right to make or distribute additional copies, the doctrine is properly applied only when a particular 3. 471 U.S. 539 (1985). copy of a work changes hands. Two persons cannot have simultaneous possession of a copy. Transferring Bernard Sorkin is Senior Counsel at AOL Time possession of a copy means giving up possession. If the Warner, which participates in a range of entertainment giver and receiver both have copies, as would be the industry sectors, from film to cable television to pub- case in a digital transmission, then the scope of the First lishing. Mr. Sorkin has extensive business and legal Sale Doctrine has been exceeded. experience at AOL, where he has been since 1964. Pre- Thus properly understood, the First Sale Doctrine viously Mr. Sorkin was an attorney with Columbia applies not only to the traditional media in which Pictures. His professional activities include service on works are fixed, but also to tangible digital media, the many committees of various bar associations and on most prominent being optical disks containing soft- the Advisory Committee on Copyright Registration ware, sound recordings and motion pictures. The pur- and Deposit of the Library of Congress. chaser of a DVD copy of a movie or a CD copy of a

10 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 NYSBA 2003 Annual Meeting Entertainment, Arts and Sports Law Section Annual Meeting New York Marriott Marquis • New York, New York January 24, 2003 Jeffrey A. Rosenthal, Section Chair Kenneth A. Nick, Program Co-Chair Ayala Deutsch, Program Co-Chair Bernard R. Sorkin, Keynote Speaker Panelists: George A. Cooke, Jr., Jonathan S. Frankel, Peter W. Smith, Jeffrey C. Johnson, Michael J. Mellis

MR. ROSENTHAL: I’d take a look and see what like to welcome everyone. a great resource it is to My name is Jeff Rosenthal virtually all of our prac- of Cleary, Gottlieb, Steen tices. It has a number of & Hamilton, and I’m features, such as archived Chair of the Entertain- Journal articles, calendar ment, Arts and Sports of the Section and com- Law Section, and I would mittee events, notewor- like to welcome you all to thy decisions, links to our Annual Meeting. other entertainment, arts Kenneth A. Nick Jeffrey A. Rosenthal Ayala Deutsch and sports law Web sites I wanted to start out Program Co-Chair Section Chair Program Co-Chair and so on. And the most the meeting today by rec- valuable feature that I found with our Web site is that it ognizing the achievements of my predecessor, Judith is fully searchable, you’re not just searching with head- Bresler of Cowan, DeBaets, Abrahams & Sheppard, and lines or things like that, but full text searches within just kind of spend a moment and then give her a gift articles as well. that we’ve gotten for her. So I would certainly encourage people to use that, Judith served as our Chair from 2000 to 2002, and because I think it’s quite valuable. And in recognition of without taking away from the work or the accomplish- the service that Judith has given to our Section, I just ments of her predecessors, I think during the time that want to present her with this token of appreciation. she served as Section Chair, the Section really grew and thrived. And a couple of the most tangible achieve- MS. BRESLER: I just want to say that there was actual- ments that we saw during Judith’s tenure, and some- ly a third accomplishment that took place during my thing that’s quite tangible to all of you, are two specific tenure, and that was developing a fabulous, fabulous things that I would note. team of successors and leaders that are spearheaded by Jeff and Elissa, so I thank you. One would be the revival of our Entertainment, Arts and Sports Law Journal, and that’s been the collaboration MR. ROSENTHAL: Before I introduce Kenny Nick and of Judith and our Journal Chair and our Section Vice- Ayala Deutsch, who have put together the terrific pro- Chair, Elissa Hecker. And our Journal has really grown gram we have today, I wanted to mention one upcom- now, I think, into one of the leading entertainment, arts ing event in particular to all of you. and sports law publications out there. And Elissa is After a number of years, our Section is revising its overwhelmed I think every spring, fall and winter with annual conference. Many of the other Sections, as some a number of really high-quality submissions, although of you might be aware, other Sections of the State Bar, we always are looking for more. have held a Fall or Spring Meeting, generally at a con- But it really is in just a short period of time that it ference center or hotel somewhere outside of New York has grown into something that I think we’re all quite City. proud of. And after a number of years in which the Entertain- The second thing that Judith really spearheaded as ment, Arts and Sports Law Section had not had one, Chair was the launching of our Section’s Web site, we’ve revised that, and it’s going to be held on Friday www.nyeasl.org (which will soon be merged with and Saturday, March 28th and 29th, at the Doral Arrow- NYSBA’s Web site—stay tuned), and I would strongly wood Resort in Rye Brook. So it’s something that is a encourage those who have not been on the Web site to great place for people who want to go and spend part

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 11 of a weekend, and also convenient for those who are her work. The idea behind the panel and a lot of the unable to spend the entire time, but would like to just speakers you see here were her thoughts, so I would travel up for one of the two days. just like to thank her for that. Kenny Nick, our Program Chair, and Jay Flemma Let me just briefly give you background of what have put a lot of work into putting together what is we’re doing here. Copyright law represents a bargain shaping up to be a fantastic program so far. It’s going to between the public and copyright owners. The public offer seven CLE credits, including two ethics credits. grants certain rights to copyright owners in order to We’re going to have an evening cocktail reception, fol- create an incentive for the production and marketplace lowed by a dinner with Judge Rakoff of the United for the distribution of creative works. But for this bar- States District Court for the Southern District of New gain to function, there must be some compromise York, who will deliver our keynote address; and you between the rights of the copyright owners, who expect might be familiar with some of his recent decisions, to be compensated for their work, and the public’s right including the MP3.com case. to fair use of this material. We’re going to have panels on RIAA versus the By using this axiom, material made from hard-copy artists. We’re going to have a two-credit ethics panel. material applies when the protected works are viewed, We’re going to have—for some of our newer mem- transmitted or downloaded through the Internet. What bers—a program on breaking into the industry, and we will look at today is, among other topics, how do we’re going to have various break-out sessions to copyright owners enforce their rights for materials ensure that a number of our committees are represent- placed online? ed. How do copyright owners seek to enforce their dig- We’re going to have theater arts, music, internation- ital rights? What remedies are available to owners of al trademark and licensing and publicity rights break- rights, and what defenses are available to those whose out sessions. So I would encourage people to look at reproduction of the protected works goes beyond the this, and hopefully many of you would be able to join concept of fair use? us for all or part of the program on March 28th and We will also explore how these issues arise when 29th. protected works are disseminated outside of the U.S., Let me now finally introduce Ayala and Kenny, and what happens when the information to be protect- who have put together this program, and they can ed is not a product, but rather an individual’s personal introduce the remainder of our people. Kenny Nick, as I identifiable information. mentioned, is our Program Chair. He graduated from So without further ado, let me introduce the panel New York Law School and the University of Michigan of experts we’ve assembled here today, who will speak at Ann Arbor. He’s Vice-President and Assistant Coun- much more easily on the topic, and I’ll hand it over to sel of Fiduciary Trust Company International here in them. New York, which is an investment management firm. In that role, Kenny provides advice not only on fiduciary Just briefly, our agenda. We’re going to hear from matters, banking, corporate law and securities, but also each of the panelists, and then we’re going to open it up on matters related to technology, software and hard- to questions from the audience. ware licensing, intellectual property. So let me first introduce George Cooke. George was Ayala Deutsch is our Chair on our Committee on named Senior Vice-President and Chief Counsel for Sports, and after graduating from N.Y.U. Law School, Film Programming for Home Box Office in December she spent several years as my colleague at Cleary 1999. He is responsible for overseeing the negotiating Gottlieb, Steen & Hamilton, and then joined the Nation- and drafting of agreements for the financing and licens- al Basketball Association, where she is now Vice-Presi- ing of motion pictures that appear on HBO services, as dent and Senior Intellectual Property Counsel at NBA well as corporate and securities matters. George joined Properties, Inc., and that does include international law HBO in April 1983 as Associate Counsel for Film Pro- as well as trademark and copyright litigation. gramming. He was promoted to Vice-President and Senior Counsel, Film Finance in May 1987, and became And with that I will let Kenny and Ayala take it head of the Legal Department’s film programming area away. Thank you. in May 1995, when he was named Vice-President and MR. NICK: Thank you, Jeff. Let me first welcome all of Chief Counsel, Film Programming. Prior to joining you this morning. HBO George was an associate in the Boston law firm of Ropes & Gray. George is a Phi Beta Kappa graduate of I think we’ve got a wonderful program and excel- Dartmouth, has a J.D. degree from Harvard Law School lent panel for you today. I just want to take this oppor- and an M.A. degree from Cambridge. tunity to thank my Co-Chair, Ayala Deutsch, for all of

12 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 Next to George is Peter Smith. Peter is a partner in the New York office of Hogan & Hartson, and a member of the firm’s corporate securities and finance and intellectual property unit. Peter represents a wide range of clients in the media and technology sector, including those engaged in the direct-to-home satellite television, computer hardware and software, Internet, news media and news publishing industries. Peter represents such clients in connection with the acquisition and sale of proprietary content, mergers and acquisitions, public and private offerings, and strategic joint markets and content within these and other industries. Prior to entering private practice, Peter served as law clerk to (left to right) Peter W. Smith, George A. Cooke, Jr. and the Honorable Ellsworth A. Van Graafeiland of the U.S. Bernard R. Sorkin Court of Appeals for the Second Circuit. Peter received his B.A. from the University of Delaware and J.D. from Next to John is Michael Mellis. Michael is a Senior Benjamin Cardozo School of Law, where he was editor Vice-President, General Counsel and acting Secretary of of the law review. He is a member of the Intellectual Major League Baseball Advanced Media. That’s an Property Law Section of the New York State Bar Associ- interactive media company of Major League Baseball, ation. Welcome, Peter. and operates the official Web site of Major League Base- ball and each of the 30 individual official club Web Next to Peter is Jeffrey Johnson. Jeffrey Johnson is a sites. Prior to the creation of Major League Baseball partner in the law firm Pryor Cashman Sherman & Advanced Media, Michael was the Deputy General Flynn. His areas of practice are corporate and corporate Counsel, New Media, Major League Baseball Enterpris- finance, intellectual property, biotechnology and tech- es, Inc. Before joining Major League Baseball, Michael nology. Jeff practices in the transactional aspects of tech- was an associate in the law firm of Patterson, Belknap, nology and intellectual property exploitation, including Webb & Tyler, where he practiced in the firm’s litigation all aspects of international licensing, private place- and commercial departments, and focused on intellec- ments, mergers and acquisitions, joint ventures and tual property matters. Before joining Patterson Belknap, strategic alliances, as well as related regulatory compli- he clerked for the Honorable John Bartels, United States ance in the biotech, software, Internet and telecommu- District Court for the Eastern District. Michael received nications industry. Jeffrey received his J.D. from Buffalo his J.D. law degree from Harvard Law School in 1991, University School of Law and B.A. from the University and his B.A. from Williams College in 1987. of Colorado. He’s also a member of the Licensing Exec- utives Society and a past Vice-President of Legal and Those are our panelists, who you’ll be hearing from Patents of BTG International, Inc. in a little bit. Next to Jeff is Jonathan Frankel. Jonathan is an Before we get to our panelists, it is an extreme associate in the telecommunications and electronic com- pleasure of mine and of the Entertainment, Arts and merce practice group of the Washington, D.C., office of Sports Law Section to be able to introduce you to our Swidler Berlin Shereff Friedman. John has been active keynote speaker for today, Mr. Bernard Sorkin. in the representation of domestic and international telecommunications providers, electronic commerce Bernard, as I’m sure you are aware, is Senior Coun- providers, Internet service providers, trade associations, sel at AOL Time Warner, which participates in a range Internet portals, venture capitalists, entrepreneurs and of entertainment industry sectors, from film to cable tel- emerging and established technology companies. Mr. evision to publishing. Mr. Sorkin has extensive business Frankel also advises various clients on matters on their and legal experience at AOL, where he has been since Internet business models, drafts, and negotiates various 1964. Previously Mr. Sorkin was an attorney with e-commerce and technology contracts, such as Web Columbia Pictures. His professional activities include hosting agreements and software licensing contracts. service on many committees of various bar associations Mr. Frankel represents e-commerce providers and Inter- and on the Advisory Committee on Copyright Registra- net service providers in domain name and Digital Mil- tion and Deposit of the Library of Congress. After grad- lennium Copyright Act disputes. John is a graduate of uating from the City College of New York, Mr. Sorkin the University of Michigan, where he was a magna cum completed his degree from Columbia University and laude. He received his J.D. from George Mason Univer- Brooklyn Law School. sity School of Law. [Please refer to page 6 for the entire text of Bernard Sorkin’s keynote address.]

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 13 What do I mean by those big words? Basically when you exploit a theatrical motion picture, you do so pursuant to a timeline in which that motion picture is sequentially released in different media. That timeline has traditionally begun with a release in theaters. It’s then followed with a six-month point by release of home videos, whether it’s VHS or DVD format. About three months after that, a release in a pay-per-view environment over non-tangible distribution media such as television. About a year after, there are theatrical releases on pay television services such as the one I work for. Perhaps a year after that, or 15 months after (left to right) Michael J. Mellis, Jonathan S. Frankel and that, a release to broadcast and basic cable, and then a Jeffrey C. Johnson cycling of the product indefinitely between various media, such as pay television, broadcast syndication MR. NICK: I think what we heard from Bernard is: and basic cable. Where are we? How have we gotten to this state? What As the distribution progresses, in order to maximize is the underlying law and practice that we have seen? the revenue, there is a rough relationship pursuant to Now our five panelists are going to take us on a much which the greater the spread of the medium through more practical journey through how they, in their which the particular product is exploited, the lower the day-to-day practices, deal with the issues that Bernard price point. has so articulately laid out for us. I’m going to first now hand the stage over to George Cooke from Home Box You can think of it as when you go to the theater, Office. here in New York you pay $10 or $12 for a ticket. You access something on home video, you can—if you pur- MR. COOKE: Thank you, and thank you again, Bernie. chase it, it’s at a certain price; or if it’s a rental, it’s a Good morning. I’d like to take this opportunity to dis- couple of bucks a night. Pay-per-view continues to be cuss digital rights management in a particular context, $2 or $3. Then you get to subscription service, and so that I think a better appreciation can be gotten about eventually you pay nothing for it, other than the misery how it actually works when you’re engaged in trying to of watching the commercials. exploit a certain product within a series of different places. Now, the other aspect of this structure that makes it viable, at least with regard to the typical high-budget And I would like to talk about, in this instance, the theatrical motion picture, is the fact that motion picture theatrical motion picture distribution. And in doing so I studios are supported by the residual value of their film would like to touch on a number of matters. I’d like to libraries, and understanding the crucial role of digital begin by sketching out very briefly the traditional the- rights management, you need to keep a focus on this atrical motion picture distribution structure. fact. Then I’d like to address the potential changes to The motion picture business isn’t viable unless you this structure that the digital revolution both promises can continue to exploit your library product. In the 20 and threatens. I’d then like to focus particularly on the years I’ve been in the business, one constant you role that digital rights management is envisioned to always see is the fact that independent film distribution play in making sure that the promises outweigh the companies go bankrupt. And the reason they go bank- threats. rupt is because they’re in a very high-risk business, and I’d like then to touch on some current attempts by the only way you can sustain yourself in that business traditional distribution media to adapt to the digital is by being able to continually recycle your film library. revolution. And finally I would like to give what might And if you look at any of the viable players, the one come next for the motion picture industry and televi- characteristic they all share is a huge library of product sion industry in connection with digitalization. that they are continually exploiting. To begin with then, let’s talk briefly about the tradi- Now, what do the changes that the Internet promis- tional theatrical motion picture distribution structure. es and threatens amount to, with regard to this industry What is it? Its essential structure has grown up over the structure that we’ve just sketched out? years, which is that it’s designed to maximize revenue I think, as Bernie has already pretty much alluded through a series of time-sequencing exclusive rights to in more detail, and certainly in a more scholarly fash- grants in technology-differentiated media. ion than I will, the promises are of two sorts.

14 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 The first promise is that you will have a single dis- We begin with the notion that motion picture pro- tribution media that can be effectively controlled by the duction itself at this point is becoming digitized. It’s producer of the product. been well-publicized that Lucas and the Star Wars sequel has gone directly to digital production, and I Since the late ‘40s, because of the antitrust actions think we’re beginning to see the first significant imple- that separate the motion picture studios from the the- mentation of digital distribution to theaters. No more atrical distribution, you’ve had a situation in which the print; potentially, no more print piracy. producer will have to use a series of intermediaries to exploit its product. Moving from the theatrical stage into home video and pay-per-view, we see real tumult in these particular With digital distribution, there is certainly the areas of the industry. The motion picture studios have promise that sometime in the very near future the pro- already embarked, at least a significant number of ducer can control the entire sequence of distribution of them, on the Internet exploitation of their motion pic- product. And what this means, of course, is that won- tures through the MovieLink consortium, and the major derful word, which perhaps was a bit less known two home video distributors are spinning around trying to or three years ago, and that’s “disintermediation.” That figure out some way to deal with both the increased means eliminating the aggregate or middleman in your availability of video-on-demand through broadband distribution chain. Unfortunately, that means HBO. So distribution and on the revolution that’s been created there are issues that need to be sorted through. by the digital disk. So you see major retailers like Block- Now, what are the threats that digitalization brings? buster going into the pay-per-view business themselves I think Bernie pointed to these again in much more and essentially becoming rack jobbers rather than rental detail, with much more expertise, but let me remind outlets. you first that the threat that digitalization presents is In my own particular niche in pay television, we loss of control of the product. And when you lose con- have been very, very aggressive and very concerned to trol of the product, you lose the ability to maximize and try to meet the changes in our industry brought on by get return from it. digitalization. And perhaps the most significant area in Part and parcel of the loss of control of product is which we’re going to see changes, depending on your the destruction of the residual value of the film library. cable company, for services like HBO, Starz and Show- The economics of the entire motion picture industry time, is in the area of subscription video-on-demand. resides on these two kinds of foundations. It’s become very clear to us that, in order for us to Digitalization threatens to remove them both. remain a viable and effective source of programming, we have to be able to produce an on-demand product. And I think it’s far from idle conjecture to assume Our ability to do so rests upon digital rights manage- that, unless digital rights management is successfully ment. implemented, you will see a collapse of the studio system, and it will no longer be possible rationally to pro- Another area you’re seeing a lot of aggressive duce motion pictures in the budget ranges we now see. change in is in the area of the breadth of rights that are No one is going to bet $300 million on The Lord of the necessary to continue to survive as a downstream dis- Rings if they know that the moment it’s first released, tributor. HBO will now not acquire product without the ability to control the distribution is gone. Internet rights. Clearly there are a couple of predicates to our actual distribution by the Internet, but at this So we come again to the crucial role of digital rights stage it’s part of our common business practice to say management in the industry that I participate in. What that unless you give us the ability to distribute by the does it offer to us? It offers in the first instance an Internet during our window, we don’t want the prod- opportunity to limit, certainly not to preclude entirely, uct. peer-to-peer sharing. And it also permits us to continue to maximize return on our product by tying usage to And finally you see a very significant move, cer- price. tainly at Home Box Office, and I think throughout the television industry in general, towards original prod- Now, having sort of laid out the circumstances and ucts. In the time I’ve been here, we’ve gone from being the issues, I’d like to talk very briefly about what’s primarily theatrical motion picture programming to going on right now in the traditional media relating to being an enlarged original producer as well. theatrical motion picture distribution in connection with the digital revolution. Similar kinds of trends can be seen in the broadcast industries. You’re seeing, in terms of sequence of How do we see change at the moment? I think we exploitation, a blending of what is traditionally segre- see it in each of the traditional stages of distribution.

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 15 gated broadcast and basic cable windows against the something that comes on the screen is going to be some current costs of theatrical product. form of mechanism to direct new content, and the control of that first interface is going to be very important. There isn’t yet an unfulfilled promise in the tremen- dous giveaway of spectrum that was part of high-defi- And I think the importance of that interface raises nition television accommodation. I think the broadcast again for us some very significant legal issues, which stations are obviously very much focused on how to primarily relate to the extent to which the entity con- use this spectrum to generate revenue to supplant what trolling the viewer interface may interfere with the pro- is going to be a prerogative support base, and you’re gramming to which it provides access. seeing broadcasters acquiring Internet rights during this If you’re a cable company, if you’re a pay-per-view sequenced exploitation window. supplier, if you’re a dish operator, what are your legal Now, what’s next for our industry, given this cur- rights with regard to the framing, linking and alteration rent situation, sort of looking ahead a few years? I think of the signal that you’re providing access to? What are the first thing to keep in mind is, the pace of change for the limitations on your right to copy and store as a the industry is going to be dictated largely by the rate service to the viewer? What are your rights to provide of broadband distribution penetration. None of this is tapes, swap-and-store, whether it’s done at the cable viable until you’ve got a broadband access to the Inter- operator level or at a set-top box? net, because you don’t want to spend 30 hours down- These all seem to be wrapped up into a number of loading a motion picture. But once you have broadband fair use issues that Bernie alluded to, and I think there’s connectivity, the speed with which these changes occur going to be a significant sort of battle taking place in will increase. the next coming years, as we try to figure out how digi- I think we’re going to see—as always, whenever tal rights management relates to the digital revolution there’s a new medium introduced—all media will sur- and either the survival, the demise or transforming of vive, but likely in a transformed way. I think it’s pretty the traditional distribution media. Thank you. sure that film values will erode for after-markets, and MR. NICK: Thank you. That was excellent. Next we’re again, the traditional after-market distribution media going to turn the microphone to Peter Smith from will turn increasingly to event programming, original Hogan & Hartson. Peter? products and initial programming. MR. SMITH: I’m going to shift gears a little bit and talk It makes a lot more sense for HBO to spend $120 about an issue that I think forms an important back- million for a couple of episodes of the “Sopranos” than drop to our discussion on exploitation of content over to spend $20 million for a theatrical motion picture that the Internet and its distribution, and will craft this dis- everyone has access to on the Internet. cussion with a fact that I am not deeming myself as a Another thing we’re going to see is marginalization First Amendment lawyer. I’m a transactional attorney. I of distribution media that were based upon now-super- help facilitate companies’ distribution of proprietary seded technological limitations. What I’m talking about content over a number of different platforms, the Inter- here is broadcast. An entire industry was built on the net being one of them. allocation of certain broadcast footprints, local stations Of a particular interest to me, you might say that and televisions on the low side. I think we’re seeing recent developments in this matter that have awakened over the next 10 to 15 years their marginalization, and me to some extent, are issues arising out of jurisdic- they’ll be supplanted. It no longer makes sense. tions. I think the final aspect that is going to emerge, in In specific, it’s a thorny issue that anybody here, in terms of change in the very near future, is what I call entertainment, arts and sports law, should concern the battle for the viewer interface. When so much is themselves with. available via the Internet, power will reside in the entity that has direct access. But in the borderless world of the Internet, questions come up as to: Where is an article deemed pub- Who will that entity be? Well, there’s going to be a lished when you put it on the Internet? Where might big fight with regard to who the participants are going you be subject to suit, in light of the content of that arti- to be: Cable companies, Internet portals, pay-per-view cle? Is an online publisher liable in every jurisdiction in services, dish operators, the owners of electronic pro- which an article can be downloaded? If so, what juris- gramming guides and, indeed, electronic manufacturers diction’s laws are to be applied when evaluating that themselves. content? And what I mean here is when you turn on your If online publishers are potentially liable in jurisdic- monitor, something comes on the screen, and that tions that lack free speech protections to which we’re

16 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 accustomed here in the U.S., should the online publish- The importance of this rule to American libel er think about tailoring its articles to meet the least-tol- jurisprudence, again as I understand it, was articulated erant jurisdiction that its contents may pass through? last year in Firth v. State of New York.2 That was a New York State Court of Appeals case, which rejected the So what that really brought to my mind for me— notion that an alleged defamatory statement posted on and I confess I did spend a little time relating to what the Internet is in fact republished each time it gets the speakers do and trying to pick a topic that fit accessed or downloaded by an Internet user. between them, and I do think this one did. Last month, Australia’s high courts justified the exercise of jurisdic- The Australian court dismissed the concerns raised tion over U.S.-based online publishing to a defamation by Dow Jones and others that participated in the case case based solely on the accessibility of that Web pub- that a ruling in Gutnick’s favor would open the door to lisher’s site. every jurisdiction. On this note, the court said the specter which Dow Jones sought to conjure up in the Just days later, two circuit courts here in the U.S. present appeal—of a publisher forced to consider every articulated a different standard, concluding that the article it publishes on the World Wide Web against the sphere of jurisdiction over online publishers is improp- defamation laws of every country from Afghanistan to er where rather defamatory conduct is not specifically Zimbabwe—is seen to be unreal when it is recalled that directed towards the forum state. in all except the most unusual of cases, identifying the So have any of you—or all of you—reviewed this, person about whom the material is to be published will without knowing the names of those decisions? If you’d readily identify the defamation law to which that per- just show hands? So I’ll try to get this right. It’s—Dow son must resort. Jones v. Gutnick1 was the case decided in Australia on So I think it’s not just the person, but probably also December 10th. the person’s address that we might want to concern In that case—I want to talk about the background, ourselves with as publishers. because I think it’s helpful. Joseph Gutnick was an Aus- Now, counter to this ruling, we have cases very tralian citizen who had business ties to the U.S. He recently decided in the Fifth and Fourth Circuits. The brought a libel action against Dow Jones, arising from first of them, Revell v. Lidov,3 was decided in the Fifth the publication of an article entitled “Unholy Gains,” Circuit. There the court held that the mere fact that an that appeared in Barron’s Online magazine. Internet-accessible article allegedly defamed a Texas You should know that Barron’s magazine is not dis- resident did not support the exercise of personal juris- tributed to Australia at present. The article was avail- diction in Texas. able through Dow Jones’ wsj.com subscription service, Now, by way of background here, Revell was a and as such could be downloaded and read in Australia Texas resident and former Associate Deputy Director of by subscribers. the FBI. He sued Lidov and Columbia University for The primary judge, and that’s basically the trial defamation arising out of Lidov’s authorship of an arti- court level, alleged that the allegedly libelous state- cle concerning the Lockerbie bombing of Pan Am Flight ments were published in the state of Victoria when 103 several years back. Lidov was not affiliated with downloaded by Dow Jones who had met its payment Columbia University. He was merely a person who and performance conditions and by the use of their posted an article reflecting his own thoughts on the passwords. He rejected Dow Jones’ contention that the Web site of the Columbia School of Journalism. publication of the article in Barron’s Online occurred at Lidov’s article alleged that the Reagan administra- the servers maintained by Dow Jones in New Jersey, a tion had prior knowledge of the impending terrorist principle we know and love here. act, and criticized Revell’s purported complicity in a As such, the primary judge deemed the defamation related conspiracy and cover-up. The article was a little to occur in Victoria by the Court of Appeals, and the more heated, in that it falsely went on to accuse Revell high court agreed with that conclusion. In upholding of changing the flight for his son. He was apparently the conclusion, the high court rejected the single-publi- booked prior to the disaster on Pan Am 103, so needless cation law, which deems a statement to have been pub- to say he took a different flight home. lished at a particular time and in a particular place, At the time he authored the article, he had never notwithstanding the fact that in the Internet context been to Texas, except to change planes, or conducted allegedly defamatory statements can continue to exist any business there, and apparently was completely and be observed anew by persons far from the assigned unaware that Revell resided in Texas. place of publication, which is what we see here.

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 17 So Revell commenced The court also deemed an action against not just this conclusion to be con- Lidov, but the Board of sistent with the recent Trustees of Columbia Uni- decision in Bird v. Parsons,6 versity and the School of a case in the Sixth Circuit, Journalism in the Northern which found that the Ohio District of Texas, claiming court lacked general juris- damage to his professional diction over a non-resi- reputation in Texas, and dent company through emotional distress arising which an Ohio resident out of the defendant’s could affect domain regis- alleged defamation. The trations, and in fact is true, district court granted where something along motions by all of the the lines of 4,000 Ohio res- defendants in that case to idents, this affected those dismiss. domain registrations. (left to right) Jonathan S. Frankel, Jeffrey C. Johnson, Peter W. In upholding the dis- The record shows that Smith, George A. Cooke, Jr., Bernard R. Sorkin and Jeffrey A. trict court’s dismissal, the Rosenthal Columbia had managed to Fifth Circuit made certain sell only 20 subscriptions important observations. On to the Columbia Journalism the issue of general jurisdiction, as opposed to specific Review. The Web site is in Australia, by the way. jurisdiction, the court noted that the Texas long-arm statute reaches as far as it’s permitted by federal due- On the specific jurisdiction issue, the court rejected process notions. The court observed that the sliding Revell’s argument that under the effects test articulated 7 scale test that was first set out in Zippo Manufacturing v. by the case Calder v. Jones by the Supreme Court, Zippo.com,4 a standard which weighs the extent to Texas’s exercise of specific jurisdiction over the defen- which a Web site is either passive or interactive in func- dants would be appropriate. tionality, is not well-adapted to the general jurisdiction Speaking of Calder, it was a case in which the inquiry, because even if repeated Internet contacts are actress Shirley Jones brought a suit against The National made, they may not amount to substantial, continuous Enquirer. It was a print publication case, but I think this or systematic contacts that due-process provisions uncovered some of the reasoning held by the Fifth and demand. Fourth Circuits for purposes of this discussion. The court commented that while a Web site may be Shirley Jones was a resident in the State of Califor- shown to be doing business with Texas, it may not be nia, a state in which, by the way, this is a very impor- shown to do business in Texas. There’s quite a distinc- tant fact, The National Enquirer had 600,000 subscribers tion there. That’s what the Constitution requires, that to its weekly. I don’t know what that amounts to. Any- it’s doing business in Texas. body know what the newsstand price is of The National So the fact that the Columbia school Web site per- Enquirer? It’s not a trick question. mitted Texas users to do things like subscribe to their So it’s a fair amount of income they’re receiving on journal, the Columbia Journalism Review, permit advertis- a weekly basis in California, based on those numbers. ing on the site, or to submit—as the defendant, the pri- But at any rate, the Court held that the allegedly mary defendant—did in the case, electronic materials libelous story concerned the California activities of a posted, or even submit electronic applications for California resident, that it impugned the professional- admission to the Columbia School of Journalism, all of ism of an entertainer whose television career was cen- those thing didn’t support the findings. tered in California. The court noted that the facts were in stark contrast The Court went on to say that the brunt of the harm to the seminal case on general jurisdiction, which was in terms of Jones’s emotional distress and injury to her Perkins,5 decided by the U.S. Supreme Court in 1952. In reputation was suffered in California, and in sum the that case, the Ohio court simply ruled that it had juris- Court held that the focal point of both the story and the diction over a Philippine corporation that temporarily harm suffered was in that jurisdiction. relocated to the forum, kept its records and held its directors’ meetings there, maintained bank accounts So again, I think anybody involved in that case there, and made all key business decisions there. So it’s would have trouble explaining the argument that if Cal- no surprise that such a company would be subjected to ifornia represented the singular largest piece of their suit in Ohio.

18 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 distribution of The National Enquirer, they couldn’t there were fiscal issues in the state of Connecticut, like prove they were doing business there. many others. The Fifth Circuit found the distinctions between The article published by the Advocate discussed, Revell’s case and Jones’s in Calder to be insurmount- among other issues, the allegedly harsh conditions typi- able. It noted that the article written by Lidov contains cal of the facility, a class action that was undertaken by no reference to Texas, nor does it refer to the Texas the transferred inmates against both the warden and activities of Revell, and it was not directed at Texas the Connecticut Commissioner of Corrections. That readers as distinguished from readers in other states. claim alleged apparently improper medical care and the denial of religious privileges and other items; and lastly, This latter point is an important one. Texas was not a Connecticut state senator’s expression of concern over the focal point of the article or the harm suffered, the Confederate Civil War memorabilia displayed in the court concluded. The court also noted that Revell did warden’s office. not contest Lidov’s claim that he didn’t know Revell was residing in Texas at the time of the article. The arti- The coverage by the Courant included mention of cle was written and posted. That’s also an important alleged cruelty on the part of prison guards towards fact. inmates, and actually went on to characterize the facility as a cut-rate gulag. And further, that knowledge of the particular forum in which a potential plaintiff will bear the brunt So Young was incensed. He commenced an action of the harm forms an essential part of the Calder test. against the defendants in the Western District of Vir- ginia, claiming that the articles implied that he’s a racist Lastly, while Lidov must have known that the harm who advocates racism and encourages abuse of inmates of the article would hit home wherever Revell resided, by the guards at the prison. a more direct aim is required than we have here. The district court denied the defendants’ motion to In short, the article was not about Texas, and if the dismiss the action for lack of personal jurisdiction. It article had a geographic focus, it would be Washington, was concluded at the district court level that personal D.C., the location Revell allegedly includes where the jurisdiction can be exercised under Virginia’s long-arm Reagan administration decided to cover up facts related statute because, “the defendants’ Connecticut-based to the event. Internet activities constituted an act leading to an injury Young v. New Haven Advocate8 was a case decided on to the plaintiff in Virginia.” December 13th of last year by the Fourth Circuit. This Specifically, the defendants were well aware of the one came on an interlocutory appeal from the U.S. fact that the plaintiff was employed as a warden within Western District of Virginia. That case held that the Vir- the Virginia correctional system and that he resided in ginia court can’t constitutionally exercise jurisdiction Virginia. They also should have known, according to over two Connecticut-based newspapers and members the district court, that any harm suffered by Young from of their staff where defendants did not manifest an the circulation of those articles on the Internet would intent to aim their Web sites or articles posted on those occur in Virginia. sites at a Virginia audience. So the defendants took an interlocutory appeal to By way of background, Stanley Young was a Vir- the Fourth Circuit. Again, it’s important to keep in ginia resident and warden of a prison located in the mind, for purposes of this fact pattern, that the Advocate Commonwealth of Virginia. He sued two Connecticut is a free weekly publication, published and distributed newspapers, the New Haven Advocate and The Hartford only locally in New Haven, Connecticut. I suppose it’s Courant, and their editors and writers and each of those like the Village Voice. The Courant is a bit larger publish- staffs for libel arising from the publication of articles er in Hartford and distributed locally. related to the transfer and housing of Connecticut state inmates to the Virginia facility. At the time of the suit, the Courant had eight subscribers in the State of Virginia. There’s no indication The backdrop for this was that, in late 1990, Con- that the Advocate had any distribution, other than peo- necticut, like many states, was suffering a prison over- ple carrying it on airplanes to the state. No representa- crowding problem. The issue was a very lively debate, tive of these papers ever traveled to Virginia to work on one in the press and one by the public, because among the articles. other things, as you can imagine, for anyone who wants to visit an inmate, having to travel to Virginia rather There’s a substantial number of phone calls that than down the street to the local state penitentiary cre- were made, as you can imagine, by employees of Vir- ates quite a burden on families of inmates, not to men- ginia to gather information. Neither of these papers has tion the financial issues brought to bear in times when offices or employees in Virginia, solicit business in Vir-

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 19 ginia, or derive any substantial revenue business from target a Virginia audience. Rather, they were posted in goods used or services rendered in Virginia. None of connection with an ongoing public debate of Connecti- the individual defendants, the reporters or editors, had cut’s prisoner transfer policy, clearly not something that any traditional contact with Virginia, nor did they solic- involved Virginia or any guidance they were seeking, it business there or have any business relationships or other than the fact they were acting as landlord for assets there to mention. some wrongdoers. So Young, needless to say, didn’t bother trying to The themes are common elements in U.S. cases. establish general jurisdiction over the defendants. He One that I like is evaluation of defendants’ own mini- was smarter than that, asking the circuit court to re-rule mum contact with the forum state, whether domicile, only denial of specific jurisdiction in the case. So, in whether they have offices there or conduct business, reversing this decision by the district court, there were a whether they have substantial sales there, and the like. number of observations made that are important again. A second is directing electronic activity into the In the ALS Scan9 case, decided by the Fourth Cir- forum state, as distinct from merely making content cuit, the court noted that specific jurisdiction in the available in that state via the Internet. Internet context may be based only on an out-of-state Thirdly, manifested intent of engaging business or person’s Internet activity directed at the forum state other interactions within the forum state or interactions and causing injury that gives rise to a potential claim within the forum state. cognizable in that state. Further, activities that create in a person within the This approach is consistent with the one used by state a potential cause of action within that state’s the Supreme Court in the Calder case. The Court noted courts on the libel front, and specific knowledge of the how important it is in light of Calder to look at whether particular forum in which a plaintiff is likely to bear the a defendant expressly aimed or directed its conduct brunt of harm caused by the article. toward the forum state. So what do we do about Gutnick, and where does Although the place that the plaintiff feels the that leave us as people trying to advise the U.S.-based alleged injury is plainly relevant to the jurisdictional companies that exploit content over the Internet? inquiry, it must be accompanied by the defendant’s own sufficient minimum contacts with the state if juris- Well, it appears clear that U.S. online publishers diction is to be upheld. may not have the benefit of the latter, more measured approaches to the exercise of jurisdiction. In ALS Scan, to which the court cited, the court noted that a person’s act of placing information on the Might the ability of online publishers to reach glob- Internet, and this is the most helpful point on the issue, al audiences on the Internet, coupled with their inabili- is not sufficient by itself to subject that person to per- ty to efficiently block access to content by specific seg- sonal jurisdiction in each state in which the information ments of the global audience, spawn a successful effort is accessed, an approach under the traditional due- to harmonize the many divergent defamation standards process principles governing a state’s jurisdiction over worldwide? Or will cases like Gutnick merely engender persons outside of its borders would be subverted, if greater efforts by online publishers to develop and that were not the findings. deploy technological means to limit access by users located in countries perceived to pose unacceptable lia- The court in the Fourth Circuit observed that some- bility risks? thing more than posting and accessibility is needed to indicate that newspapers purposefully directed their As to the vision of one world, one libel standard, activities in a substantial way to the forum state. The I’m a bit of a skeptic. One commentator shared that newspapers must, through Internet postings, manifest view. He observed that while the American legal sys- an intent to target and focus on Virginia readers. tem has long provided strict protections for speakers, it might be difficult to persuade policymakers in other Now, the court thus turned to the Web site content countries to abandon the balances that their own legal placed in the record by Young, and observed that both systems have reached, in deference to the standards papers’ Web sites’ content was plainly local in nature. reached under U.S. law. It’s a fair comment. As you can imagine, it reflected the local real estate list- ings, standard and classified advertisements and links This notion was clear from one of the concurring to Connecticut-related Web sites and content. It wasn’t opinions in Gutnick, which explicitly expressed resist- designed clearly to attract or serve a Virginia audience. ance at the imposition of American legal standards in Australian courts. The current opinion said, what the Lastly, the court found that the articles underlying appellant seeks to do is impose upon Australian resi- Young’s complaint were not posted with the intent to

20 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 dents for the purposes of this and many other cases an Online gambling sites are worried the U.S. might American legal hegemony in relation to Internet publi- seek jurisdiction over them. Online collectors are wor- cations. ried that the EU might assert jurisdiction over them, and anybody operating in the online environment The consequence, if the appellant’s submission increasingly recognizes that Internet jurisdiction is a were to be accepted, would be to confer upon one coun- risk that all sites have to account for. try, and one notably more benevolent to the commercial and other media than this one, an effective domain over So who is most at risk where the question of juris- the law of defamation. diction is unsettled? And, clearly—in my view—it’s the deeper pockets. Nonetheless, it’s hard to imagine a world in which the U.S. would abide a libel doctrine pursuant to which It appears that the largest online publishers will truth does not constitute a defense. face the greatest risk of foreign courts, those that maintain offices, conduct business and maintain assets in So how do U.S. online publishers feel about those jurisdictions where actions may be brought. responding to claims in jurisdictions that lack a First Amendment equivalent, or a public-figure doctrine, It’s hard to even imagine Gutnick dragging the New or—perhaps more importantly—a fair-use doctrine? Haven Advocate to Australia, clearly a company that has no assets in that jurisdiction. It’s important to note that the Australian high court’s expansive view of jurisdiction in Gutnick is not MR. NICK: We could get back to some of those topics necessarily limited to libel cases. The possibility of lia- during our panel discussion in a few minutes. I just bility for online publishers in any country where online want to, at this point, move on to our next panelist, Jeff speech may be accessed opens the door to applying all Johnson from Pryor Cashman, and then we’ll come the world’s censorship laws to U.S.-based publishers’ back hopefully to Peter, to give you a chance to finish content. up some of your conclusions. As my colleague Bob Corn-Revere, a First Amend- MR. JOHNSON: Good morning. I’m going to talk ment expert, observed, by such a standard, Web pub- briefly about an interesting business model that I’ve lishers could be forced to block access to information come across in the course of my practice, referred to that sabotages national unity in China; undermines reli- generally as the hostile host, and then wrap up with a gious harmony and public morals in Singapore; offends couple of what I find to be interesting analogies in kind the social, political, media, economic and religious val- of more business-to-business area of what I do. ues of Saudi Arabia; fosters pro-Israeli speech in Syria; And I have one general caveat to all my comments, or makes available information offensive to public which is in general my observations are, last time I morality in Italy. looked, this was true. Every time I look into the Internet I should note, to my knowledge, the bulk of Inter- things have changed, and they’re being done differently net travel going through Saudia Arabia is re-routed and than they were the day before. subject to pre-publication review. The hostile-host phenomenon arises in the context And these standards, by the way, technologically— of what’s known as file sharing or file swapping, the and we can get to this during our panel discussion peer-to-peer network. And there are generally two later—it’s interesting to note whether or not local types of peer-to-peer networks, closed networks and restrictions that are so severe shouldn’t be the domain open networks. Closed networks generally involve of these local restrictions, in light of what is less restric- going into a Web site and using that Web site to share tive. content with other participants, users of that Web site. Based upon these principles, a French court has An open network is more software-based and already ordered a U.S.-based Yahoo to dissuade and involves getting access to particular software and shar- render impossible any access by Internet users in ing content with other owners or users of that same France to the Yahoo Internet auction site displaying software. Nazi artifacts, a ruling now the subject of an appeal The open networks are particularly insidious from pending before the Ninth Circuit, a decision due any the perspective of content owners, because there’s really minute. no central person you can identify, like a Napster, if you Moreover, as Michael Geist, professor of law at the will, that facilitates the infringement or contributory University of Ottawa—leading the Jurisdiction II project infringement. of the Cyberspace Law Committee of the ABA’s Busi- ness Law Section—as he points out, it’s not just U.S. online publishers who are concerned about jurisdiction.

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 21 The enemy, if you will, is really a diffuse conglom- Typically common to the one is no unauthorized eration of people. One of the things to keep in mind advertising. And, for example, you might see a term with peer networks and time sharing is that there are that says that you are not to post, transmit or otherwise typically legitimate uses of the software or of the closed make available any unsolicited or unauthorized adver- networks. The Web sites that you may go to the hostile tising, spam, et cetera. When a hostile host responds to host is a business model that content owners have a request for music, if the content of that response is an developed, really involves a numbers game. advertisement, it is unauthorized. It is unsolicited. What happens is if you are a participant in a peer- These are questions your clients have to ask them- to-peer network sharing—illegally sharing—content, selves before they put together responses in the hostile- you might ask for Abbey Road, for instance, and all other host context. Interference before service. Most of the participants in the network who have a copy of Abbey terms of use very clearly state that you will not use the Road send you back an e-mail saying, “I’ve got a copy Web site in a manner that interferes with use of that of Abbey Road.” Web site by others. What you don’t know when you get that e-mail Similarly, most software agreements obligate you back is exactly who this person is, other than the identi- not to use the software in a manner that will interfere ty that you see in the e-mail. A hostile host is somebody with other legitimate users of that software’s ability to who, on behalf of the content owner, will participate in use it. If your normal response rate is 50, and now a peer-to-peer network and send responses that are you’re getting 200 responses, are you interfering with benign. They may not be threatening. They typically the legitimate user’s use? And keep in mind it might be don’t threaten to come after somebody for illegally a legitimate user. They may be exploring content that infringing, but they might try and sell the content to isn’t protected by copyright. you, instead of giving the content to you, or might pro- Another area is false identity. Most of these, partic- mote other content and make available short snippets ularly the Web sites, say that you can’t use the Web site of the content you’ve asked for. in a manner that misrepresents who you are. Well, obvi- The numbers game they play is in—for example, ously, in the hostile-host strategy you are typically mis- you ask for a copy of Abbey Road, and on average in the representing who you are, at least initially. network you’re participating you get 50 responses. The Another area that we’ve looked into is statutory hostile host might generate 150 aliases that all will claims on the federal level. There’s a statute, the Com- respond, all with different names, you don’t know who puter Fraud and Abuse Act. I don’t have the cite imme- they are, saying “I’ve got a copy of Abbey Road. Come diately in front of me, but it basically provides for fed- get it from me.” So instead of now the user getting 50 eral jurisdiction and penalties in the context of responses saying “I’ve got a copy of Abbey Road”; knowingly transmitting a program or information that they’re getting 200 responses saying “I’ve got a copy of damages a “protected computer.” Abbey Road,” and 75 percent of the time the person they respond to is going to be the hostile host. It makes it If you overwhelm someone’s Web site with too frustrating for a user to use that particular network. many responses and crash his server, have you damaged his computer equipment? There certainly are cases The issues that we have explored come up with a that support that potential perspective, in Virginia. I question of: Well, what’s the risk to the hostile host? don’t have the cite in front of me. It’s in my materials. Does the hostile host’s business model, if you will, raise You can look it up. any legal liability or potential liability on its behalf? And typically the most cogent area where you can real- There was a case where basically spam e-mail was ly look into that is breach of contract issues. held to violate the Computer Fraud and Abuse Act. Also you have to keep in mind that the Act provides for Most, if you will, of the closed networks are Web a private right of action. sites that have a term of use that most courts have found constitute a contract between the user and the And in my materials I talk about how somebody operator on the Web site; and open networks that are using one of these user services to share, legally share, software-based typically have a software license that content is unlikely to bring a private right of action. you have to agree to before you start using the soft- One of my colleagues pointed out that a lot of people ware, which by the way, these software licenses are are looking for a soapbox and my right to bring a pri- usually very clear that it’s illegal to copy or infringe the vate right of action if they think they can succeed, busi- software that you’re using. In any event, what these ness-to-business issues that are raised in my line of agreements frequently have in them are some basic ele- work. ments.

22 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 This is kind of a segue outside of the hostile host. area of law, a relatively new body of digital rights, and I’m going to bring up two issues that I run into that I those are rights that everyone in this room has. find fairly interesting. One is Internet purposes. I do a And I’m going to refer to those rights and informa- lot of work for clients who aren’t providing content to tion as privacy rights. The right of privacy is nothing general consumers. It’s really business-to-business con- new. It’s been around for quite some time, but informa- tent. tion privacy is something that is new or relatively new. This particularly comes up in the biotech area, And I’ll just give a little bit of background. Informa- where you’re using a database. There’s frequently a tion privacy really refers to an individual’s control over model and software licensing, and includes an obliga- the collection, news disclosure and disclosure of infor- tion to only use the database for “international purpos- mation that personally identifies that person. And this es.” Well, international purposes is rarely defined, and is basic stuff. This is your name, your address, your raises the question of what is an international purpose e-mail address, your phone number. when you’re actually looking at content. It can also include more sensitive information: Your If you have a collaboration with scientists at a big credit card number, your Social Security number, health farm, or you’re a pharmaceutical, and you have a col- information, your race, your gender. As you can see, it laboration with a large pharmaceutical company, and applies to everyone. And this has become especially rel- your client’s sitting in your office, and you’re trying to evant for attorneys that practice in intellectual property come up with a cure for cancer, and you’re using a areas and transactional areas, because privacy becomes database that obligates you to only use the database for an issue when two companies are acquiring each other international purposes, if you allow the scientists from or acquiring databases. your strategic partner to use that database while they’re conducting the research at your office, is that an inter- And it’s one of these new areas of the law which national purpose? just happened to fall into the laps of intellectual property attorneys, so chances are that you will probably deal You need to address issues like that frequently, and with these issues. it does become a little bit tricky and frequently con- tentious when you’re creating those issues with owners And unfortunately the law can be quite confusing. of a database. There’s quite a few laws, and I’m going to try to sum- marize some of the laws, so that hopefully everyone Another area is in mergers and acquisitions when can leave today with a little better understanding of pri- you get into assets sales, and you’re talking about pro- vacy law and how you might be able to protect your prietary databases. The question is, are there other clients, or if you’re in house, protect your company. copies out there? How can we be sure no one has ever made an unauthorized copy of this? Do we know that In the United States there’s no comprehensive infor- we’re not going to end up buying the database that is mation privacy law that applies to all personal informa- available ubiquitously over the Internet two weeks after tion. Rather, U.S. privacy law is broken down by essen- we pay $50 million for it? tially privacy sectors such as government surveillance, financial information, medical information, and chil- Those can become tricky issues that can be hard to dren’s information. negotiate, and only now are people really kind of grappling with the answers to those types of questions. That And by way of example, there are a slew of govern- having been said, I will leave it to my colleague to fol- ment laws that cover the collection of personal informa- low on. tion from individuals, and keep in mind there’s no way I can mention all of them. I’ll mention a few. MR. NICK: Thanks, Jeff. So far, from George and Peter and Jeff, we really heard from a perspective of when the The Communications Assistance for Law Enforce- protected works, works of art or music, are written ment Act, that is commonly known as CALEA, that pieces. What happens, though, when what you’re try- requires carriers who are transmitting or switching wire ing protect on the Internet is personal information? Per- or electronic communications to help the government sonal privacy. That deals with online issues and digital engage in legally authorized electronics surveillance. rights issues. These are some of the topics that John That is what I refer to as more of a pro-government Frankel is going to address for us right now. John? statute. MR. FRANKEL: Thank you, Kenny. As Kenny men- You then have a little bit of a pro-consumer statute tioned, I’m going to be talking about information priva- in the Electronic Communications Privacy Act. While cy. The digital world that we live in, which is more and this Act does expand the copy of federal wiretap laws more dominated by the Internet, e-mail and the massive to include electronic communications such as e-mail transfer of information, has created a relatively new and video teleconferencing, it restricts both the govern-

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 23 ment and the private sector from accessing electronic can’t. If the consumer says nothing, the company shares communications, and it also prohibits unauthorized the information. access to stored communications, subject to certain Opt-in means that consumers have to actually give exceptions, which I might mention the F.B.I. takes their express permission to share the information. As advantage of those exceptions, and a recent law, which you might imagine, companies that rely on personal is one of my personal favorites, only because of what information for communicating with their customers it’s called. It’s referred to as the U.S.A. Patriot Act, and for marketing prefer opt-out. I’m not sure if anyone is familiar with this law. Some of the specific sectors that have had privacy It’s extremely comprehensive. It amends a number laws passed in, in the financial sector is the Gramm- of privacy-related laws and was passed in record time Leach-Bliley Act. I don’t know if anyone has had to deal by Congress, shortly after the events of September 11th. with Gramm-Leach-Bliley. It’s really a beast of a statute. The reason I personally like the U.S.A. Patriot Act is It’s one of those statutes that after you spend about an apparently the drafters of the act came up with the hour and a half reading and trying to figure out what it name U.S.A. Patriot Act, and then instructed their leg- says, you really need to have a drink and question why islative aides to go into a room and figure out how you decided to even practice law. we’re going to come up with the name of a statute that The Gramm-Leach-Bliley Act has highly intensive incorporates the letters “U.S.A. Patriot Act.” What they definitions. It sets forth notice requirements and restric- came up with is “Uniting and Strengthening America tions on the ability of financial institutions, which are by Providing Appropriate Tools Required to Intercept very broadly defined, to disclose non-public personal and Obstruct Terrorism.” The acronym is USA PATRI- information about consumers to non-affiliated parties. OT. Every one of those terms is defined and requires you to Apparently a number of low-level legislative aides go searching through banking statutes, which I’m sure spent many hours to come up with that. Kenny Nick loves, but drives me personally crazy. The Patriot Act is a comprehensive statute. It The important thing to understand about Gramm- enhances law enforcement investigative tools to detect Leach-Bliley is that even if you don’t think it might and prevent acts of terrorism and address a number of apply to you because you don’t feel you’re a financial privacy statutes. institution, think again. There are other federal privacy laws. The Privacy The best example is: Law firms were shocked to Act of 1974 governs the collection and use of personal learn upon the passage of Gramm-Leach-Bliley that identifiable information. The Fair Credit Reporting Act they’re required to adhere to the Act to the extent they governs use of consumer credit reports. The Cable have clients who they provide financial, tax or estate Communications Privacy Act governs cable subscriber planning advice to. information. The Video Privacy Protection Act prohibits Law firms were very upset by that. I don’t blame disclosure in that area. them. Lawyers obviously are subject to professional I didn’t mention state law. It’s important to mention rules of responsibility and attorney-client privilege, that if you’re dealing with privacy issues, don’t just which are significant and more restrictive. It seems silly look to federal law. There may be a state law that is on to tell your clients we’re going to protect your informa- point, and you should keep that in mind. tion when we’re already required to do so. The next set of statutes are really of the more pro- The ABA actually requested that the FTC give consumer statutes that recently have been enacted. A lawyers an exception. The FTC summarily denied a number of these statutes talk about this concept of opt- request and said, “It’s not our problem. Go to Congress in and opt-out, and I’m going to briefly describe that. and put on your lobbying shoes and get them to change It’s a concept that many people don’t understand or get the law.” confused with, and it’s because it’s so commonly mis- Another law which applies to a particular sector is used by everyone. the Children’s Online Privacy Protection Act. This pro- But basically it’s a method that requires companies tects the collection of private or personal information to allow the individuals who they collect information from children who are under 13. It’s also quite a com- about to restrict the disclosure of that information. plex law. The important thing to remember is that this law is—even if you don’t think you collect information Opt-out is less restrictive. Opt-out means: I’m Com- from children under 13 or you operate a Web site that’s pany ABC. We collect your information. We’re going to not directed to children under 13—if you ask someone share it with these people, unless you tell us that we is there a registration process that has his or her birth-

24 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 day and you have an ability to put in the birthday, that MR. NICK: Thank you, John. Now we’re going to hear makes you then under 13. from Michael Mellis from Major League Baseball Advanced Media, and I believe Mike is going to take us You arguably knowingly collected their information through how Major League Baseball put its product and are subject to the Children’s Online Privacy Protec- online for subscription services. Mike? tion Act. The feds have been enforcing this act. The penalty can be pretty steep. I don’t have time to go to MR. MELLIS: Good morning, everyone. That is my through how you can prevent that liability. goal, to try to explain through one industry, in this case Major League Baseball, how it’s presently exploiting its Maybe we can discuss it during our panel discus- digital and audio rights on the Internet, and in particu- sion, but it is something to be aware of. lar when I was listening to Mr. Cooke, I think after On top of all of these U.S. laws, to add to the confu- we’re done explaining what we do online, it’s an illus- sion, Peter touched upon the European Union. There tration of what he said about how the statutes keep are data protection laws in various other countries: changing with respect to the direct content. Canada, Argentina, Australia, Russia, a number of But on the other hand, I think also I’m going to try countries in Asia, some that have developed data pro- to show how we tried to accommodate the statute ques- tection laws, and those laws are typically more restriction in terms of broadcast television and in other areas tive than the laws that exist in the United States. to make the two worlds coincide and align. And it’s important to recognize that if you operate First, just by way of background, Major League a Web site and you collect information from people Baseball exploits its content online for the most part online, you can collect information from anyone world- through mlb.com, which consists of 33 Web sites, one wide. And this raises some of the jurisdictional and ter- for each club, the official Web site for each club, Yan- ritorial issues that Peter so eloquently spoke about. kees.com, and mlb.com for the World Series and All These are things that you need to consider in how Star games. you’re going to handle that. We do a lot of things on these sites. Just by way of Typically the very largest companies have gone the example, we have news, statistics. We sell tickets online route of, for example, UUnet as a privacy policy on for all clubs. We have a store. We have sponsorship. We share sites that are country specific. have syndicated content, and we have a message board. I can’t imagine a task like that, to put something And we have a greeting area, where we sell audio and like that together, but it’s certainly an issue that you video on a subscription basis, and also offer some audio want to consider. As far as the outlook for privacy this and video free. Last year our site in toto had about 500 year, essentially what does the future hold? million visitors, 58 million visits to our news section, about 6½ million votes cast for the All Star Game and Well, privacy was really at the forefront prior to other events that we did, and one million paid sub- September 11th, and since the events of September 11th, scribers for audio and video. We’re in year two of doing it’s really moved to the back burner. And one of the that. issues that is really important is privacy versus security. On page five of the materials that I think are in Since the terrorist acts, the government’s need for your packet, I put in some statistics here that I think personal information for security and for enforcement you might find interesting. I won’t go through them all, purposes seem to overshadow privacy concerns, and but the bottom line is, as you can see, if you compare this has greatly upset consumer groups, who really the total number of accesses to our subscription number want Congress to enact comprehensive privacy legisla- and our free number, you see that there is a strong and tion. healthy appetite for free content, which is not surpris- I personally don’t think it’s going to happen. It’s ing, considering the way the Internet has entered the been teed up for about the past four years every year. public culture in the last five or ten years, but that only It’s never been enacted, so I don’t foresee a future with four percent of our users access multimedia. And just a comprehensive U.S. privacy law. on the basis of four percent, we have over one million subscribers. That being said, there are a number of privacy laws out there, and as a practitioner who is advising clients And I think what that suggests is what Mr. Cooke that collect information, it’s important to have a general mentioned, as broadband penetration increases right understanding of what these laws are in order to poten- now, I think it’s depending on the region of the country. tially reduce any exposure and risk that your client may Between 20 or 30 percent, that ability to access multime- be subject to. Thank you. dia content will grow, and the demand for it will grow

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 25 and the opportunities for content owners and content exploit, to copyright broadcast live and after the fact on distributors will grow. the Internet and in other platforms. Another interesting thing, at least something that I Another area that might consume a lot of your time found interesting here on this page, is with respect to and continues to, is distribution. How do you distribute subscription audio, the distribution of radio on the this type of subscription content to get to the widest Internet. That’s something that has been around for audience? quite some time, and we think that the people feel com- One thing that we do, and I know the NBA did it as fortable with it, don’t need a high speed connection to well, is have a distribution arrangement with networks listen to it. which is linked to a Real Player that probably most of For that reason, something that’s been going on for you have on your computers, where through their sub- the last five to seven years, there was a company called scription services you can buy our product within our Broadcast.com that was a pioneer that did it as a real sports package and other types of content in other network does it, and certain companies like ours. areas. And in that respect, the network is looking for like a—by way of analogy—the cable MSO. And one interesting thing here that I’ll get to in a second in some more detail is the ability to stream a And these distribution agreements are, I think, as radio station or a television broadcast station, which is complicated as any others in any other area of context something that we’ve seen done over the years, and in distribution might be, and factors that we have dealt some cases irrespective of rights. with range not only in rights and all the usual things that go wrong with that, but more subjective things It is something that lawyers would understand, but such as how—what kind of limits would we insist on to apparently some people in the broadcast industry don’t make sure our content isn’t bundled with content that understand. Just because they have the rights to distrib- we would think is inappropriate or inconsistent with ute something on television doesn’t mean they neces- baseball’s image. sarily have the right to distribute it on the Internet. Another issue which comes up and which had And the practice is less frequent than it used to be, come up with distribution which left our radio product but I spent a lot of time years ago sending C&D letters defenseless, which I think we’ve skipped past it, but it out to broadcast, particularly TV stations, reminding was a live one a couple of years ago, not with respect to them with respect to our content they do not have the our product, but with respect to the streaming in of right to redistribute on a 24-7 basis what we have done radio on the Internet in general, is the existence of on television on the Internet. advertisements that are on the radio, then being piped The practice in this area, I think is something to through on the Internet. keep in mind, because it’s something we still see from And the issue there was the objection of some talent time to time. In terms of subscription products, I’d like groups, that the restrictions in their collective bargain- to talk in more detail about what we do specifically and ing agreements with their broadcasters did not permit some concerns that are raised. that talent’s voice to be redistributed on the Internet, Our primary audio product is what we call Game that the talent had only been paid to have his or her Day audio, and that enables a subscriber to listen to any voice, for example, on radio, addressed on radio, but radio broadcast of any baseball game during the season not on the Internet. for a fee. Last season it was $14.95 per season. The way we have dealt with it, even though we’re In developing this product over the last several not privy to contracts with respect to this, is we just years—at least to the extent that I’ve been involved in bleeped out the advertisement, and I think that’s this—some of the legal considerations which might becoming more common practice. The irony there is come to bear in areas that you might find yourselves in that the company that’s paid to have the advertisement are these: produced has the opportunity to have that advertisement distributed in a much wider footprint geographi- First, our clubs are independently owned and oper- cally than it originally might have thought if it was just ated, and the team is independently operated, and as buying, let’s say, a New York City market. far as broadcast content, you have to make sure you have the right, just what I said before, who owns the But if the advertisers don’t take the extra step to rights, how have they been parsed out, and to what make sure that their talent agreement or talent agree- extent can they be exploited on the Internet. ments that their agencies have entered into that permits that broader distribution, they won’t be able to enjoy In the case of baseball, the clubs are copyright own- that. ers of broadcast, and they also reserve the right to

26 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 The final issue which comes up, and fortunately up name, address, telephone number. The second is to this point in time has not been a significant one for through very advanced—very advanced—software that us, but it’s been alluded to by the other speaker, is tracks the Internet protocol address where you are copying, how to prevent that from happening. accessing the information from. By making our live products available on a sub- If you’re accessing information from a foreign coun- scription basis in streaming media format, that’s try, your Internet protocol address would indicate what encrypted, and it’s very difficult to copy, and it’s country you’re coming from. If you’re in the United proven in the years that we’ve been doing it to be a States, it will indicate where you’re coming from, and pretty good way of getting content out there, and not can get more specific than that. And when we marry having to worry about the type of wholesale copying that information with the other information that we and distribution that the Internet can otherwise permit. have about a subscriber, we can determine with a very high degree of competence where that person is coming I want to talk about subscription video, because I from. think it’s an example of, again, not how the status quo is changing, but how it’s being accommodated. We do And we review all that stuff real time, and if we see several things by way of subscription video. We offer in the rare instance what we’ve seen, someone who has post-game video clips. We offer what we call condensed represented to us that they are, let’s say, in Boston, but games, which is a 20-minute version of a baseball game, they’re really in New York, and so they want to see a where we show every payoff pitch, every strikeout, and game that they otherwise are prohibited from that. that boils about a three-hour game down to 20 minutes. And this type of geographically targeted or geo- It received a lot of attention in the press. It’s not graphically permitted viewing is something I think you something that many people might prefer to watch, but might see a lot more of, because we’re not the only some people do. It’s been called baseball on steroids. It industry that has that type of concern. is out there, and it seems to be enjoying some populari- I think you’re also starting to see it in the e-com- ty. merce area with respect to the sale of goods. I just heard Another thing that we do—we started to do this on the radio, for example, several days ago, that Glaxo last season and will do much more of this season—is said it will no longer sell its pharmaceuticals to Canadi- the streaming of live games outright. The first time we an pharmaceutical distributors, who then make them did it was this past August for the Yankees-Rangers available for sale on the Internet and offer them for sale game. back into the United States, because the price structures are different. Then we offered a subscription package at the end of the season. Then we offered the post-season— avail- And Glaxo or the industry in general said it’s losing able on an international basis, but not in the United a billion dollars a year. States and not in Japan because of rights holders’ I think one can imagine a future where you’ll be restrictions, and this season we’re going to do much able to buy certain things like pharmaceuticals or con- more of that. tent based on where you live, or let’s say gamble online, And here is where we’re expected to be, in a place where law permits. that is similar to what you might know or be familiar And the technology is probably here for that type of with if you have DirectTV, where there are premium thing, but if it isn’t there for the sale of something like a sports packages that are packaged on an out-of-market drug today, it probably will be in the next couple of basis. years. I think that will open up a whole new area of a There’s the NFL ticket, NHL and MLB Extra, where whole industry, but also a whole new set of legal issues if you’re in New York and you buy MLB Extra, you can that again tie into what the other speakers were speak- watch every baseball game except those in your market, ing about with respect to jurisdiction and which will going along with the long-standing practice, and we’re apply. going to do the same thing, and we have done the same That’s really what I wanted to point out with what thing with respect to streaming games on the Internet we do, and I would be happy to answer any questions through broadband. you might have. And one issue that is a very interesting one here is MR. NICK: Before we open up to general questions how we do that, how we prevent people from accessing and answers, I think there were just a few topics we streams from a particular geographic area. And we do it wanted to elicit with our panelists, and give them a in three ways. One is through a registration process, chance to discuss these issues amongst themselves and where we take in verified credit card information, amongst all of us.

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 27 In the past few days, the Washington, D.C. District MR. NICK: Peter, when you were talking, you were Court came down with a decision where it compelled touching on different jurisdictions having different Verizon’s Internet group to provide the RIAA with the ways of interpreting or applying laws in regard to name of the subscriber who was making available applications of what we’ll call hard-copy laws, libel, unauthorized copy of songs. Verizon had claimed this slander, et cetera. You have a client whose Web site is was not the intent of what the law was supposed to be. clearly going to be disseminated or transmitted across They fought it vigorously, but the district court ruled boundaries. How do you advise your client as to the for the recording industry. protection that you take or the risk that it might be exposed to that you will see or inconsistency of laws in I wonder if the panel has any comment on what the foreign jurisdictions? impact of that decision would have on the industry or their clients. MR. SMITH: I think the most important thing that I can say on this topic is that, you know, there are cur- MR. FRANKEL: Well, I think initially for those who rently pending, among other things, not just the cases, aren’t familiar with the case, it involved an interpreta- but the Hague Convention on jurisdictions and foreign tion of subpoena power under the DMCA. judgments. Currently it’s an important effort, most And it’s very clear that both sides viewed this as a importantly—I think an important one to watch. test case, and the reason it’s a test case is because I can’t imagine that the United States would accede arguably if copyright owners can use a subpoena to to any international convention or standards about the identify the individuals who are infringing, then you application of foreign jurisdiction laws in the Internet might start to see an issue of these subpoenas that start context or the enforceability of judgments based on the getting sent to ISPs, especially because the copyright viability arising under Internet-based activity. It didn’t owners use something called a boot, which automatical- defer substantially to our notion of due process and the ly identifies where music is or movies are being constitutional standards applicable here in the U.S. infringed, and then it automatically generates an infringement notice. But I think it’s an important issue and very broad one, but as has been the case with other international So this is something that is really—to the extent that measures, the U.S. and people interested in the U.S. I the decision is held up, and Verizon made it clear they think would have to take a piece-by-piece approach to are going to appeal it, but to the extent that the decision evaluate any proposal, and would clearly pay a great is held up, this could create an unbelievable expense on deal of attention to the way in which their business Internet service providers, large and small, and Internet practices and the expectations, more importantly, of service providers as large as Verizon could be receiving U.S. online users would be impacted. thousands of subpoenas on a daily basis. So for the moment, if I were advising someone For an Internet service provider that is very small tomorrow who’s publishing an article, it’s an interesting and only provides service to maybe a couple of thou- thing, because on the Internet we can’t decide to amend sand customers in Montana, it could receive one sub- a page in a book slated for distribution in the U.K., for poena, and that could throw it for a complete loop, example, where libel claims are more easily made on because they wouldn’t know what to do about it. It’s a the basis that truth is not an absolute defense. real—I think it’s going to be very interesting to see what happens. You have the former life of a rock star using cocaine in the airport that’s published in a book, a tell-all. It I think for the immediate future though, if I were may very well be true, and that person may very well advising a client on it, my response would be—I gener- have a viable claim in the U.K. in respect to that. But ally represent the Internet service providers, but my what the book publishers can do is pull the page in dif- response would generally be—this would assume the ferent versions of the book there. And Internet publish- decision is appealed, but until the decision has been ers do not have the same luxury. finalized, so there would be an appeal, and even if it goes to the Supreme Court, that you continue to protect So I think today I would urge people to be scrupu- the privacy of your users. lous in their adherence to journalistic practices, and to do what they need to do, but to put the argument that Ultimately, if it goes through, it might start to limit they think is fair and use it. And again, this is my opin- the amount of people who feel comfortable getting on ion. I’m not speaking for any client right now, but I peer-to-peer networks and downloading music. I mean, think that it’s safe to say until these jurisdictional issues it really is a test case. So I don’t know if any of the other are settled, and courts like the Ninth Circuit in cases panelists agree or disagree. having to do with applications of a law, finding or rul-

28 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 ing, that we need to rely on our constitutional stan- Are you selling a good? Are you selling something, dards and protections. offering something there for free, or are you doing something on a subscription basis? And it’s very com- MR. NICK: Bernie, did you want to add anything? plicated. MR. SORKIN: I think I can only add an agreement to MR. NICK: Jeff, and probably Peter, you might want to what Peter has said about the complexity of these comment on this. If you have a client who has to issues. The proposed Hague Convention raises a num- enforce digital rights, do you have any advantages or ber of very, very significant problems. Fortunately, Jeff disadvantages to enforce that right through litigation, Kovar of the State Department, who’s leading the U.S. or would you prefer some sort of alternative dispute activity, is sympathetic to these problems, and nothing resolution or another way to solve these issues? is being rushed ahead, but clearly something will emerge from this exercise. And one of the decisions that MR. JOHNSON: Well, I guess the problem with the U.S. businesses and attorneys have to make is whether alternative dispute resolution element to it is typically to join or let the rest of the world go ahead and create there’s not a contractual relationship between you and this convention without our participation. That alone is the infringer. a tough problem. But having said that, I—even when there is an Peter has spoken about resolving the jurisdictional opportunity to pursue alternative dispute resolution— issues. I’ll be damned if I see how that is going to be I’m probably not a big fan of it, because ten years ago done. alternative dispute resolution was a great thing, but over time it has kind of turned into a somewhat less- MS. DEUTSCH: I was just wondering whether you or sophisticated litigation process, though certainly there any of the other content holders could talk a little bit are firms that are capable of generating as many and as more about how you address some of the jurisdictional much fees and taking as long to do it as they are if issues that have been discussed here by basically decid- they’re doing regular litigation. ing or advising your clients to limit the exploitation of rights in countries outside the U.S. But the other element to it—going after infringers raises the very touchy issue of picking your battles and You refer to it somewhat in the subscription con- picking the way you engage those battles, because there tent, but I’m wondering whether there are other situa- really is a public perception issue that you have to deal tions, thereby basically telling your business people we with, particularly when you’re an AOL Time Warner or have got to come up with some mechanism so this is Universal or Sony, a large media company, that, you not going to expose us to particular countries. know, you can be perceived as picking on the little guy, MR. MELLIS: Well, it’s a very complicated issue, and I and you have to carefully choose those battles. think in my experience we’ve addressed it on a case-by- MR. SMITH: I wholeheartedly agree with everything case basis, depending on what it is we’re talking about. Jeff said. My predisposition is probably to like ADR Like for example, a client needs—my client, any client also, because as Jeff alluded to, his notion of prioritizing probably needs—to be reminded of some simple things and picking the fights and where you would have that are obvious to lawyers, but maybe not to them, them. which is these days those countries that don’t respect copyright law, and the fact that when a Web page is The other concern relates to cost and assurance that published into a particular country like that, it can be we can conserve cost by pursuing ADR, but I don’t copied and duplicated without recourse, and do we know. I don’t believe that’s the case for us and for many care and does that change the way we think about others, and I don’t know about the rest of the panel. things, and then going on down the line some more— That’s going to decide the issue ultimately, and I think other legal considerations and other matters. So the anybody who is willing to pick a fight would want to answer is, it depends. try to settle that fight in a jurisdiction, at a circuit court, where the law is favorable and on point, where the You know, with respect to the streaming audio and jurists deciding are capable and well-intentioned. video that we do, as I said, since it’s encrypted and subscription-based, it’s been a pretty handy way of dealing MR. NICK: Jeff raised a good question that I would like with that area. Where we’re publishing content for free probably George and Ayala and Mike to some extent to and it goes around the world, I think in that respect answer, when all three of you work for clients whose we’re in a similar situation as anyone who publishes product itself is hugely popular, and you are building a something on the Internet, and you have to think care- product based on your fan base, Major League Baseball fully about what it is that you’re doing. or HBO, episodes like “The Sopranos,” “Sex in the City,” et cetera.

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 29 I’m sure many—sometimes you come across sites Obviously commercial use or indication that the fan that are run by, you know, a 14-year-old kid sitting in site is generating revenue using your content or IP is his basement who loves the Detroit Pistons, so he links something that we look at. We also look at it from an up some game footage, or the Yankees or “The Sopra- image perspective, tarnishment issues too. We will go nos,” and he obtains your rights. after fan sites that have pornography or gambling or other things that are not consistent with the NBA’s Is it feasible or is it practical to go against every fan image. for infringement of your rights? How do you choose whether to or not to? George? And in terms of content, we have drawn a line at video and audio, and we haven’t limited it to clips. I MR. COOKE: Well, we certainly had this issue directly think in our business clips are it. I mean, people want in connection with “The Sopranos,” which has been the highlights anyway. And at least when we know phenomenal for us. I think very early on there was a about it, we will take action with respect to any Web huge proliferation of Sopranos-related Web sites, many sites that are streaming NBA game audio and NBA quite sophisticated, some commercial, in the sense that game video, which we actually see more often. they were clearly generating income for the people who put the sites up. In an effort to balance that strategy with the concern about your fan base, we definitely have different And there was a policy decision made early on that approaches, different tones. Sometimes it’s not a C&D we weren’t going to interfere, but for circumstances in letter. It’s a phone call from a business person. Some- which we were clearly dealing with the redistribution times it’s a letter, but it’s a much friendlier style. of pirated material in its entirety. I mean, if someone has a clip, it’s very unlikely that we’re going to take The 14-year-old kid gets NBA merchandise, so we action. try and protect our rights in a way that’s not going to anger and offend the fans, because the fact of the matter If someone is distributing episodes, we’re going to is, as everyone on this panel has mentioned today, the be all over it to the extent that we can actually control current and future value in the ability to control and that. And it doesn’t simply relate to the Internet. Any- exploit your rights digitally is so huge to our business one who opens the newspaper can see Sopranos pre- people that—that we draw the line on video and audio. dinner theater and so forth. We felt quite comfortable I don’t know what Mike at Major League Baseball does. with it, based on the cost benefits. The idea that HBO is going to go in and start stepping on its fans doesn’t sell MR. MELLIS: We approach these issues very similarly very well. Ayala, what do you do at the NBA? and look at what the so-called fan site is doing, and evaluate whether there’s a commercial use, what kind MS. DEUTSCH: Slightly differently. We also have—you of content is being used, with, without authorization, know, although there are fan uses of your intellectual whether it’s fair use or not. We do place more emphasis property in all media, I think with the advances of the on clips, and if it sounds like HBO doesn’t, I can under- Internet needs, we are really confronted with, as every stand why. other brand and content owner, just an overwhelming amount of use by fans of our protected property. And And we do try to handle it, cognizant of the fact we also sat down with the business people pretty early that in many cases it’s three fans who are doing these on and kind of said, all right, you want to protect the things. But sometimes there are fans that—sometimes value of your content. That’s a very important business there are people that are fans on one hand, and trying purpose, but you also need to protect the goodwill of to commercially exploit those intellectual property your fan base. rights that they have no right to for their own commercial gain, and that’s where typically the situation gets And it’s not just the public perception of David ver- more difficult. sus Goliath. It’s the people that you’re going after are actually the people you’re counting on to spend money, MR. COOKE: I note that the issues on the Internet are to generate revenue for your product, so it’s even a entirely different from the issues generally in terms of more direct conflict than that. fan usage. We also—I think George mentioned something And one of the cases we had recently involved a about this. It is absolutely impossible and ill-advised, I fan who wanted to put together a Sopranos cookbook, think, to go after every fan site. We try and draw some and actually was kind enough to contact us and send us parameters and standards that we look at to see a draft, suggesting that it would be a lovely way to pro- whether or not it’s a case where we’re going to take mote our service. We indeed were in the process of put- action. ting together a Sopranos cookbook. So there was some discussion to discourage the fan from this publishing venture.

30 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 So it’s very much a case-by-case analysis, but it’s sent an estate of a man who owns the rights to a quar- pretty easy in the first instance to get a sense of what is ter of a million copyrighted images, and I have instruct- innocent enthusiasm and what is sort of parasitic use, ed the executor to remember if he prints one or any, and you have to sort of balance the two. offers one on a Web site, be prepared to see that image circulated on every one of the related Internet group MR. NICK: I want to give the audience a chance to par- discussions, whether it’s a chat room, whether it’s a ticipate. Sure. The gentleman almost in the back. membership list like Yahoogroups.com. AUDIENCE MEMBER: You raise an interesting issue And we tested, and soon as we did it somebody is about how you deal with the rabid fans, but you over- posting it for free, and my client has not been able to looked one important segment of it. How do you deal sell prints from the negatives because people are down- with the people who have the Internet discussion loading the stuff. It has a very definite negative impact, through some Yahoo groups, you know, Atlanta-based and the only way that the people like my client, who crazies at e-groups, you know, or Yahoo groups? don’t have the financial resources that you do, can have How do you deal with monitoring them and the any hope of preserving the income stream from the way that they infringe on copyrights and trademarks copyright assets that either—or their ancestors spent so and intellectual property rights by swapping material much time creating is like people—like I monitor these and make it available and selling it? lists, and they come down and say circulate a copyrighted photograph of Mike Piazza. MS. DEUTSCH: The NBA does not affirmatively monitor eBay, because I would be dead from overwork right And I really do mean it. Please wake up and smell now. the coffee, and remember that there are little guys like my client who are being ripped off left, right and center, AUDIENCE MEMBER: I’m talking about Yahoo and who do not have the ability, the clout or the groups. endurance to deal with it the way you guys can. MS. DEUTSCH: The chat rooms are actually in terms MR. MELLIS: Well, it might take me a little longer to of intellectual property not real forums in which digest this, but, you know, someone said—I remember streaming is going to happen, in which the sale of coun- reading this in 1994 and 1995. The Internet is the terfeit product is going to happen, so a lot of misuse of world’s largest and most sophisticated copying intellectual property that I’m concerned with is really machine. not happening in a chat room. It is by definition a copying machine. That’s what it What’s more likely to happen in a chat room is dis- is. Pages being copied, transmitted, redistributed, e- cussion that is sometimes favorable and sometimes not mails all over the world. That is what it is. So the fact about your clients and their products, and that is really that this has happened to your client is unfortunate, but an area that we stay pretty far away from enforcing it’s not surprising. It’s a variation on Napster. It’s a vari- against. ation on infringement that we deal with. It’s a variation I’m not a First Amendment lawyer either. I’m an IP on infringement that the other panelists deal with. lawyer, but that’s not something that we monitor or in But if you’re suggesting we have a greater social my experience with the NBA have taken action to responsibility to police these chat rooms, that I think is enforce. Again, I don’t know if that’s any different for something entirely different. other rights owners. AUDIENCE MEMBER: Just sort of a flip side. On the MR. MELLIS: Well, if I understand the question that other side we have this great backlash in the user com- was being asked, and to the extent that someone is modity as a result of efforts by the film industry, which sending an e-mail that contains some type of propri- I’m not criticizing, but Mr. Sorkin mentioned the law- etary material, talking about a video, something like suit against the peer-to-peer interfaces and home video that, it seems to me to be that we use the same analysis recorders and everything else, which resulted in these as we would if it were just static on a Web site, and it proposed congressional bills to gut the DMCA, and I wouldn’t matter in terms of legal analysis. The factor was wondering what the panelists’ responses are to that would be the same. issue. I think that one major difference is—you asked how MR. NICK: Bernie, anything? do we monitor. I mean, how many e-mails are transmitted a day over the Internet? Couple billion? How MR. SORKIN: There’s been—I think the legislation to could— which you were referring is the Boucher bill. And I suggested when I was speaking earlier is what Boucher’s AUDIENCE MEMBER: Second of all, you’re overlook- point of view was on all of this, and yes, it will gut the ing a very important segment of the problem. I repre- DMCA.

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 31 Now, the DMCA does present problems. No ques- So I think in the end, at least from the perspective tion about it. And some of the criticisms that were of wanting to have information freely circulated, the made of it have some justification. But I think when we argument is extremely on the side of maintaining—of think about the DMCA and try to weigh the pros and the legislative framework for digital rights manage- cons, we must realize that what has traditionally been ment. I think that the Boucher bill has its own story called the copyright balance as between users of copy- behind it. righted material and owners of copyrighted material Obviously we at HBO and others are not going to has to be shifted, and has to be shifted in the direction go forward with Internet distribution unless we can that the DMCA provides, of greater protection for the rely on some kind of reliable set of technical solutions, content owners. to furnish territoriality issues, re-transmission issues. It And the reason is, for the very reasons I tried to becomes sort of an industry blocker. outline earlier, is the dangers that digitalization poses As I said or indicated in my little spiel here, you for copyrighted material. can’t go into a digitized world without being able to There’s no doubt there will be hot and heavy con- control distribution, or else the whole economics falls troversy about the Boucher bill and about others of a apart. similar cast, but I think they have to resisted very So I think while there’s some appeal on the intellec- strongly. tual level to being a champion for, you know, fair use, There may be some areas for compromise, but fun- that when you really look at it hard, most of the fair-use damentally the kind of protection that the DMCA pro- arguments, certainly with regard to commercialized vides, and particularly by Section 1201, I think has to be entertainment, are frivolous. And forgive me for saying preserved. Otherwise, most if not all of you will that’s a personal opinion, not HBO’s. remember the phrase “the information superhighway” I don’t think the economics are going to allow the that is supposed to be created by the Internet and its DMCA to be gutted, simply because it’s going to cost infrastructure. too much. This is America’s major export industry. Let’s Well, an awful lot of investment goes into the Inter- face it. We’re not selling a hell of a lot of airplanes, but a net and its infrastructure, but if we don’t have adequate lot of motion pictures. protections, we will have an information superhighway And unless you can have reasonable solutions to with no cars on it, because the content owners will not digitized distribution, you’re going to harm a major make the product information available in digitized American industry, and I think in the end that sort of form. perspective will prevail, at least hopefully. MR. NICK: Anyone else? AUDIENCE MEMBER: I was a little surprised at when MR. COOKE: I’ll just second Bernie’s approach to that Jonathan invited you guys to disagree with him on his and a couple of personal thoughts. I’m always enter- assessment of the Verizon case, there would be a big tained by going and tying into the Bergman Center up burden to the ISPs to provide names and addresses, we at Harvard Law School, which is one of the great advo- didn’t hear from any of you, of the content providers cates against the DMCA. And it sort of amuses me, here today. because to some degree the fair usages have been bro- I don’t believe the burden was an issue in that case, ken entirely out of proportion. and I’m wondering whether any of you people repre- It’s not as if digitized information suddenly senting content providers would disagree with that becomes the only source of information, that the only assessment. way you’ll be able to get to a motion picture is by crack- MS. DEUTSCH: I wouldn’t disagree that it’s a burden ing a digitized code. on ISPs. I would say a content owner there would prob- I think legitimate fears will continue, and the bal- ably be in a situation in which he would be happy to ance between enabling digital distribution and fair-use have that be the case when he was trying to get infor- arguments is one in which if you do gut DMCA, you mation about an infringer. will see a different product. There’s no doubt about it. If I think in the world that we’re living in now, in you look at MovieLink, which is the industry consor- AOL Time Warner world, it’s very hard to separate tium to deliver on the Internet product from studios your identity as ISP from your identity as a content that aren’t a member, and the reason is because they’re owner. I’m not one to speak to that, but that’s why nervous about DMCA remaining in position and the there was not a resounding chorus of “hallelujah,” but effectiveness of digital rights management. these guys might be better able to speak to that.

32 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 MR. SORKIN: Nor I. The problem is if we go back to what George Cooke was saying about the structure of motion picture distri- MR. COOKE: I think you hit the nail on the head. Are bution and the sequence it’s in, which it necessarily has you speaking from Dulles, or are you speaking from a to go, it’s very difficult. Even if one could, as a matter corner on 42nd and Seventh? There are different per- of economics, and perhaps again, as George suggested, spectives on that, and which are obvious. there wouldn’t be anymore the need to distribute pic- MR. FRANKEL: If I could clarify, the burden was tures in this amorphous kind of way. something that I believe you’re right, wasn’t raised offi- But even if it could be made economically possible cially, but it was something that was discussed by the to release pictures in every territory in the world on the judge in the opinion. And I think that it certainly is same day, you run into the question of differing tastes, something that the ISP industry is concerned about. differing number of theaters, differing theater-going From the perspective of the content owners, they habits in countries throughout the world. should be very happy about that. So a picture released in the United States may play Arguably the content owners negotiated for that before it should be made available in—home video may subpoena power when the DMCA was being negotiated play for six months, let’s say, whereas the same picture in the legislature. The subpoena power was a tradeoff released in England or France or Italy or China could for the ISPs having liability protection to provide con- play for a much shorter time. Then what does one do tributory infringement. about making the picture available in these disparate windows, so to speak, in the other countries? So obviously the content owners want that ability, and I guess the real question is whether or not they’re So that attempts are being made to work on that, going to actually go after the individuals. I think that but how soon, how successful it is is very hard to say. will be very interesting to watch and see what happens. AUDIENCE MEMBER: I have a question with regard A VOICE: That was a great question. to digital distribution of film in international territories that are not as technologically advanced as we are. AUDIENCE MEMBER: Question for George and Bernie and the rest of the group. It seems to me one of How is that being handled? First of all, are the the more surface arguments against the 1201 would be licensees or potential distributors expected to catch up the difficulty in playing back, for example, on different technologically before they’re licensed to? And second platforms, legitimate platforms, and things like DVD of all, if they are, are Western motion picture organiza- coding, where you might not be playing back your pro- tions prepared to enforce or install some sort of mecha- gram, your video, in different platforms in different nism which would enable economically the theatrical countries and Internet releases at different times. licensees to catch up, or is there still going to be manual distribution or release for those licensees? So it sort of seems to invite people to say: Wait a minute. Why do I have to wait? Why can’t I watch this MR. COOKE: It’s a bunch of questions. I’m afraid I on this other platform? Because it would seem those are can’t give a sophisticated answer, mostly because I deal services that I think are strong, but that’s really not with domestic distribution in the work that I do. what they care about. They want to crack it and copy, I think in the end, if you look back to the larger pic- and that’s what I think the Internet industry is more ture, there’s always going to be an incentive on the dis- concerned about. tributor to maximize revenue, to look at it kind of like Are there steps being taken from a business per- that. And what you really want to do, as Bernie was spective to try to make sure product is offered on multi- alluding to in response to the earlier question, you have level platforms or simultaneously, so for example this to look territory by territory. kid in Norway, he could have bought a movie that And there are people other than—not I, who do this plays on a Linex system. He would not have needed to for a living, and they know very much, you know, why crack it, or DVD coding, that, you know, either elimi- it’s important to release a film in France as opposed to nates that, or offer the thing simultaneously worldwide. Tanzania or in the Middle East and so forth. I think It should be— you’re going to see a continued effort on the part of MR. SORKIN: Let me try what may not be a complete- international distributions to maximize revenue in each ly satisfactory answer to that question. of these jurisdictions. The answer is yes. There are efforts being made to I think the sphere of technology isn’t so much release pictures simultaneously throughout the world. bounded by political borders these days, other than cer- So that if that were successful, to some extent at least tain exceptions, in which you have a very strong politi- the regional coding would not be necessary. cal regime that’s adverse to innovation.

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 33 I think that stuff travels. You can pick up a portable once—inevitably once their technology gets out, there’s DVD player in New York and fly anywhere in the somebody on the other side who is trying to think of a world with it, and you can pretty much do the same way to defeat that technology, whether it is hostile host, thing with a satellite uplink and a piece of technology. digital fingerprinting or a variety of other technologies that are out there. I do think there are going to be forces that homoge- nize the technology. I think the regionalization in terms I think it is really a cat-and-mouse game that is in a of a consuming population will continue to play a role sense accelerated by the Internet and the nature of as will local regulation. Certain countries there’s a very information technology. There’s always been a cat-and- clear government-imposed sequence in which motion mouse game between piracy and manufacturers of con- pictures can be exploited. tent, when it was before VHS and Beta that existed. There were people who actually had a problem presum- Lots of jurisdictions are very protective to the ably. I wasn’t around for these issues. native telecommunications industry. So it’s a very complicated matrix of issues you have to deal with. Now, you know—then there was Beta and VHS, and there were people copying film, bringing the little But again, the motivation is always going to be to camera into the theater and pointing it up and filming it get product out there as broadly as possible in a way and putting it on VHS, you know. And all of that cat- that you can still maximize your return. and-mouse game is played out over the Internet via AUDIENCE MEMBER: It seems as if it would be nec- technology as a more sophisticated cat-and-mouse essary—this is being hailed as, you know, a potentially game, but it’s still really just a back and forth, and I effective means of curbing piracy in territories specifi- don’t see there being a conclusive end to it any time cally that are known for that sort of activity. So I was soon. just wondering whether there were certain programs of MR. SMITH: If you take the content of satellite televi- financial incentives being developed for those territo- sion platforms, this is what I think about. ries and those rights. The costs of replacing, you know, smart cards when MR. COOKE: Certainly there have been plenty of dis- someone is out there bootlegging technology are astro- cussions going on with representatives of places like nomical. One of the interesting questions for me, imag- China in terms of having something that works. ine having to distribute a million new cards to your It’s going on, I’m sure, in the former Iron Bloc coun- market in that jurisdiction. tries, where at one point, you know, piracy was—it’s But an interesting point that you made, Jeff, I won- still rampant. You’re trying to reach some kind of dered if you have any thoughts if the cat-and-mouse accommodation. I think it’s a long and fairly complicat- shifts away from technology to programming content, ed process, in which technology plays a role, but I think grappling with other devices, security systems that may there are lots of other factors, political factors and social not reside in hardware systems themselves, might that factors that have to go into the mix. It’s a complicated change the economics of actually enforcing digital issue. rights? MR. NICK: Jeff, you were talking about this constant MR. JOHNSON: Well, it’s an interesting thought. One battle in P2P networks, between those who are sharing of the things I would expect to see, right now you have files and the rights owners, and the rights owners’ main a box on top of someone’s TV set geared for satellite. tool to combat, the hostile host, and you mentioned this back and forth as one-upsmanship by the two parties. You know, things are becoming more and more Where do you see that battle going or—and do you see interconnected. They’re probably going to be able some rights owners employing different tools other than hos- day to download from the satellite pre-programming tile hosts, and what do you see the progression of it? for that smart card. MR. JOHNSON: Well, first of all, I think it’s important Today I don’t think so. There may well be that, that to appreciate—I didn’t mean to leave the premise that I’m not familiar with. So I wouldn’t—now, software is the hostile host is the main tool. It is a tool. certainly different and raises different issues from hardware, replacing hardware and changing it. You’ve got smart people on both sides of the equation who aren’t lawyers, thank God, thinking of things But the means of communication, particularly with to do instead of ways to go after people, and they’re wireless communications, I think ensures that it’s never coming up with nothing negative. going to be impossible to find a way to access the technology that you develop, if you know when you devel- There’s digital fingerprinting. There’s all kinds of op it that you’re going to want to be able to access it. stuff that the content owners are developing. And

34 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 MR. COOKE: I think it’s worth just noting that there is embark on an educational program, which starts with a lot of thought these days that it interfaces between the people in the very early stages of schooling, and to hardware and software people. teach them fundamentally that intangible property is property and should be valued just as much as tangible, I think it’s becoming increasingly clear that they because we know that youngsters and oldsters and have to be working in concert for the thing to work. midsters as well, who would think twice or more before And it’s a very fine line between set-top product that is taking the wallet out of their pocket, but have no hesita- convenient to the user and a set-top product that is— tion about copying your IP work for their own use. And when its principal purpose is piracy. it is a serious problem and very tough to overcome. And there’s been a lot of back and forth between MR. JOHNSON: Another thing—another aspect of industries about where you draw that line. And again, that, I would presume people are engaging in, but I’m that’s one of the things that has to be in place before we not familiar with what’s actually happening, is the arts really move forward into some kind of a viable situa- themselves delivering that message and trade groups or tion in which you don’t have an absolute protection like ASCAP and organizations like that, when they against piracy and peer-to-peer, but you have some have a very real vested interest in that, and I would kind of economic model, so that you’re not putting this think would also be taking some steps. stuff out in the street and it disappears. MR. SORKIN: Thank you. So I think we’re going to continue to see a lot of that, and I think people are optimistic that we’re going MR. ROSENTHAL: I was going to ask a question. to arrive at some solutions. When I buy a CD or DVD or CD-ROM, I have actually bought a single-user license, that I can now use it on MS. DEUTSCH: Focusing on the people coming up my DVD player or CD player. with a circumvention, you know, I take the paradigm of when you go out and try to hunt out counterfeit tee- I, like Kenny, have a toddler who’s about to turn shirts, trying to explain to fans why it is they have to two years old shortly. And I don’t know about Kenny’s pay $25 for the tee-shirts instead of $10 for the counter- son, but my daughter loves to pull CDs out of the CD feit tee-shirts. And I’m wondering whether any of you player and play with them, or pull them out of the com- engaged in any informational campaigns or advertising puter and play with them and scratch them up, to the campaigns to try and educate the public about these point where they may not be useable. issues, and whether you think there’s any chance that Why should I not have the ability to make a copy those campaigns will be successful. only for use on my machine that I bought in the first MR. COOKE: I think motion picture has been extreme- place over a CD or CD-ROM or DVD, so if she scratch- ly involved in education, both in terms of the political es it up, I still have the license that I purchased, or at process and the public, and I think a lot of it is being least have the ability to exchange it, if I can’t copy it, carried out through trade industries. with the manufacturers of it, to continue to use what I have purchased a license for when they did that. MR. SORKIN: That, and also the Copyright Society of the U.S.A. has embarked on an educational program, MR. COOKE: Well, I think it’s—if your daughter has a Copyright Awareness Week, and anybody here who’s book and she loses it, you ought to be able to sort of interested in those kinds of problems should get in store away as many copies as you like of that book so touch with them at www.csusa.org. It’s extremely it’s always available. important. I think it’s a sympathetic kind of environment when We have been talking about rather sophisticated it’s a toddler, but I think the answer is if you’re the per- kinds of piracy. From a technological point of view son who created the book or the disk, buy another one. surely, but it— what might be called piracy or at least in It’s not too expensive. my view what I call piracy exists on a lot of levels. MR. ROSENTHAL: I can photocopy the book if I did- In my view the making of a cassette from a CD for n’t distribute it to anyone else, but because of protec- use in the car, because it’s more convenient to play it tions I can’t copy the disk in the same way. that way, is an illegal reproduction. I might expect even MR. SORKIN: I would have to differ on your right to hearing an outcry of horror at that point of view, but I copy the book, even though you don’t make a public will stick to it. copying of it. The reproduction right has no public, so What the Copyright Society, the Motion Picture to speak, limitation. Making reproduction is a copyright Association of America and Recording Industry Associ- infringement. ation of America and others are trying to do is to

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 35 MR. JOHNSON: Nobody goes after you because I think it goes back to this notion that at least in an they’re very, very nice. ideal world from an economic standpoint from the people who have to finance the creation of expensive art, MR. SORKIN: It’s not that we’re very, very nice. It’s you need to control it. difficult to do. MR. NICK: Just a couple more questions and we’re If you don’t mind a little bit of reminiscing, at the going to wrap up. time the Betamax10 case—I’m sure it’s familiar to all of you, one of the greatest mistakes of the motion picture AUDIENCE MEMBER: Jeff, by law—you alluded to industry. making a copy that is for personal use or for archival purposes. If you do want to make one copy for your But when the Court of Appeals in the Betamax case daughter, in the music world you are allowed by law to ruled in favor of the plaintiffs, there were editorial car- make one copy. toons in papers throughout the country of planes sent out by Jack Valenti and carrying magnetic devices that So for that example, if you do want to make a copy, could determine whether you’re making a copy in your you’re allowed to. You can’t make many. You can’t dis- living room. That’s the kind of thing you run into. tribute it. You can’t promote it. You can’t sell it. MR. COOKE: I think it’s a good—it’s a good and MR. ROSENTHAL: How is that reconciled with copy- provocative question, because I think that one of the right protection schemes that are being put into place, major rallying cries and one of the major issues in fair you know, preventing you perhaps making some copies use is just one copy, and it opens a very interesting of things? door, because when you have people who do set-top Because that’s kind of where my question was boxes or cable providers or others is the notion that, going, because obviously you need to have the balance you know, there’s a nice business in making that copy, between the copying. That doesn’t really scare people, if and you take the step from well, I want to make anoth- I make a copy to put up on a shelf because my daugh- er copy, because I can put it safely away for my daughter scratches it, versus saying: Hey, this is a great idea. ter. I’m going to make copies and now distribute to every- So, you know, there’s a nice business here, which is body, because I can still do that. It’s how do you bal- I’m going to provide an off-site copy facility so that in ance that kind of thing? fact anything that comes from your TiVo box—First of AUDIENCE MEMBER: I want to go back to someone all, the TiVo box will make a copy, and they’ll shoot a saying, like for instance, ASCAP members against copy back to a server somewhere outside your house, artists to lobby not to have copies. I for one won’t put because these TiVo boxes, you can spill coffee on them. anything on the Internet, whether it be fine art, music It sort of ends up becoming a rationale that essen- or whatever. And movies don’t make money off of the tially guts the notion that—one of the things that copy- movie theater. They make it off distribution. right, as Bernie so correctly pointed out, protection is However, a lot of artists—I am a member of making copies, that, you know, you haven’t gotten a ASCAP—and lots of artists, rap artists, underground license of perpetual access to the work. That’s another artists, have gotten famous off the music playing where matter. the record company wasn’t going to pay for their pro- If you want to buy a perpetual license to the work, motion. you can do that a bit different, and that’s sort of the So how do you feel about that, when artists are say- promise of what you can do once you got digital rights ing, you know, the record company is using me as a tax management in effect. write-off, and I’m sitting on the shelf, where a lot of rap What I think rights owners envision is the idea of artists have made big money underground and the creating sort of the perfect relationship in the sense that record company found them and did it. What do you you’ve got a server with Gone with the Wind on it, and think about that? you can then sell Gone with the Wind anywhere you MR. COOKE: I guess in the first instance I suggest that want and at a certain price point, perpetual lifetime you—if you’re an artist, you always have the option to access to Gone with the Wind from our server X dollars, self-distribute, and my response is, you know, God being able to see it for a month Y dollars, you know, a bless you and good luck. week, a day, once, or you can go ahead and do the old fashioned thing, buy a tangible copy and benefit from Let’s take—again, it gets back to the economics of the First Sale Doctrine, buy two copies, give one to a the music industry or the entertainment industry. When friend to hold for you forever. you make a motion picture, you may spend $20 million

36 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 to make the motion picture, as we did $5 million to Certainly sequels are somewhat an exception to make My Big Fat Greek Wedding, and you’re going to that, because giving away, you know, more to The Lord spend that on a disk, and the other piece in terms of, of the Rings, you know, first episode isn’t probably the you know, a mass art form is the notion that you have best economic bet to get people to see the second to present it to your public, and you need to have an episode, even if the second episode is lousy and doesn’t economic basis to do that, and you can’t have that eco- sell anybody. nomic basis by giving it away. MR. NICK: Thank you, George. The Executive Com- I don’t want to get into the complexities, because, a) mittee of the Entertainment, Arts and Sports Law Sec- they’re complex, and b) it’s not my particular area of tion wants to take a minute just to encourage all its Sec- expertise, the complexities of the relationship between tion members to support our pro bono effort. artists and labels. We have started our own Pro Bono Committee, But at some level, artists become famous because chaired by Elisabeth Wolfe. You’ll be receiving Pro Bono people hear about them. Certainly the Internet is a Updates with more detail shortly. wonderful vehicle to distribute it, but I know—I wrote We have a working partnership with the Volunteer a novel. I can post it on the Internet. No one is ever Lawyers for the Arts, in which we are—we, the lawyers going to read it, because no one is going to go to my of the EASL Section, are—staffing clinics, providing particular Web site or server to download the novel. panelists and speakers, receiving CLE credits, exploring What I need to do is get a contract with a publish- relationships with other non-profit organizations in the ing house that is going to put an ad in The New York entertainment, arts and sports law field such as Ice Times and get me out there. There’s an economics Hockey in Harlem. behind it. Beyond that, what we’re saying is that ulti- We really encourage all of you to participate if you mately it isn’t in the interests of some artists to go out can in these pro bono efforts, with the EASL Section. and sell, distribute and give it away for free. For more information, check out our EASL Journal or In fact, there are a lot of artists who want to get our Web site, www.nyeasl.org. away from the industry by saying you know, damn it, I I would like to thank all of you attending this want it to be for free. morning’s program. I especially want to thank our pan- AUDIENCE MEMBER: They’re out there doing it. elists, Michael Mellis from Major League Baseball; They’re signed by the label, and they’re going about Jonathan Frankel from Swidler Berlin, Jeff Johnson from their business, and the kids on the street or whoever are Pryor Cashman, Peter Smith from Hogan & Hartson, doing it, making them famous, whereas the label wasn’t and George Cooke from Home Box Office; Bernard going to do a promotion and raise them to that level. Sorkin from AOL Time Warner; our Section Chair, Jeff That’s what goes on in the good case. Rosenthal; my Co-Chair, Ayala Deutsch; and all the other people who participated and who have assisted I take photographs and stuff. I would never put it us in putting this program together and making it avail- on the Internet. A lot of my friends encourage me to do able. And again, thank you all very much for joining us it. I won’t do it for the reason we’ve been discussing. this morning. But what about that? I mean, how do you feel about that going on in terms of the fans doing this and actual- Endnotes ly doing a service to the artists better than the label people? 1. 194 A.L.R. 433 (Austl. 2002). 2. 98 N.Y.2d 365, 747 N.Y.S.2d 69 (2002). MR. COOKE: If I’m making a movie, I’m in a different 3. 317 F.3d 467 (5th Cir. 2002). situation than promoting a recording artist. Okay. And 4. 952 F. Supp. 1119 (W.D. Pa. 1997). again, I think it breaks down to industry-by-industry 5. Perkins v. Benguet Mining Co., 342 U.S. 437 (1952). economics. 6. 289 F.3d 865 (6th Cir. 2002). It may be very sensible if you have an—again, this 7. 465 U.S. 783 (1984). is also very controversial, a seven-year contract or a 8. 315 F.3d 256 (4th Cir. 2002). greater-than-seven-year contract, a recording artist, to 9. ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707 (4th give stuff away to build up a reputation, so you can Cir. 2002). make it back in concerts. If you made a motion picture, 10. Universal City Studios, Inc. v. Sony Corp. of Am., 659 F.2d 963 (9th giving the motion picture away doesn’t make someone Cir. 1981), rev’d, 464 U.S. 417 (1984). go out and buy the next motion picture you release. It’s different, you know. The motion picture business is different. It’s very product-centered.

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 37 Junior Prom or NBA? A Legal Analysis of LeBron James’ Failed Quest to Enter the NBA Draft Prior to Graduating from High School By Christopher B. Abbott (Law Student Initiative Winner)

Over recent years, as the trend of college under- don’t hesitate . . . I think Jason Williams is going to be a classmen declaring their eligibility for the National Bas- special player, and the big guy in China, Yao Ming, he’s ketball Association (NBA) draft has seemed to grow 7-foot-4 and that’s significant. But LeBron is that good exponentially, so too has the trend of high school sen- and going to be that great.”7 iors opting to forgo their college eligibility and declare for the draft.1 In the 2002 NBA draft, 44 underclassmen The 2002 draft was over, and James was still in declared early, including four high school seniors, five Ohio, preparing for his senior year in high school. It international early-entry candidates, three junior college may seem illogical that such an immense talent would players, four college freshmen, seven college sopho- opt to risk injury playing high school ball instead of col- mores and 21 college juniors.2 The height of this surge lecting certain millions of dollars following his selection of underclassmen to the NBA was the 2001 draft in in the NBA draft. However, LeBron James had no which 75 players applied as early-entry candidates, choice, as the decision was made for him under the including six high school seniors, four of whom were guidelines of the current Collective Bargaining Agree- drafted in the top eight positions.3 Compare these num- ment (CBA) between the NBA and the National Basket- bers with the 1976 draft, which was the first to allow ball Players Association (NBPA). The current CBA early-entry candidates, where only 13 players had explicitly limits draft eligibility to players who at the applied for early entry, 10 of them having completed very least are old enough to have graduated from high three years in college.4 school. “A person residing within the United States whose high school class has graduated shall be eligible What was considered nearly unfathomable as to be selected in an NBA Draft if he renounces his inter- recently as 10 years ago has now become vogue among collegiate basketball eligibility notice to the NBA at high school stars, thanks to the successes of Kevin Gar- least forty-five (45) days prior to such Draft.”8 nett, Kobe Bryant and others who successfully made the transition from high school student athletes to NBA Recently, as the NBA has grown younger and superstars. Garnett declared for the 1995 NBA draft younger, there has even been talk of increasing this after being named as the USA Today National High threshold to make 20 the minimum age of eligibility for 9 School Player of the Year. He was named to the 1995-96 selection in the draft. Representatives of the NBA claim All-Rookie team, became an all-star in his second sea- the push for this minimum age results from legitimate son, and by what would have been only his junior sea- concern for the development of NBA players. However, son in college, he was named a starter in the NBA All- if the younger players were truly hurting the game in Star Game.5 Kobe Bryant experienced a similar meteoric terms of the quality of the NBA product, general man- rise as he was drafted in the first round in the 1996 agers across the league would not have been salivating NBA draft, following winning numerous national high at the thought of possibly drafting a 17-year-old high school Player of the Year awards. As a rookie Bryant school junior. was named to the NBA All-Rookie Second Team, the The NBPA has a different take on the league office’s following season he became the youngest All-Star in stance regarding the younger players, and its members NBA history, and this season Bryant became the believe the impetus for the league attempting to youngest player in NBA history to win three world increase the minimum eligibility requirement is finan- championships, during which he was an instrumental cially motivated, a function of the NBA salary-cap part of all three teams.6 As the NBA becomes increas- structure.10 If the suspicions of NBPA executive director ingly younger and younger, it comes as no surprise that Billy Hunter prove to be correct, perhaps at the expira- this season there was talk of LeBron James, a high tion of the current CBA, the NBA and NBPA will be school junior, declaring for the draft. The talk was justi- able to take these financial concerns into consideration fied, as many basketball executives considered him and open the draft to younger players such as LeBron worthy of being drafted number one overall following James. However, for now, both parties have collectively his junior season at St. Vincent-St. Mary High School in bargained for an eligible player’s high school class to Ohio. One director of personnel for an NBA team, who have already graduated, so James must wait until 2003 spoke on the condition of anonymity due to NBA rules, to apply for the draft. To fully understand the complexi- stated: “Give me the number one pick right now, and I ties of collective bargaining in sports, and LeBron

38 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 James’ situation, one must explore the history of whether the restraint imposed is such as merely regu- antitrust law as it applies to sports, past litigation lates and perhaps thereby promotes competition or involving NBA draft eligibility and also labor law and whether it is such as may suppress or even destroy age discrimination in general. competition.”17 Studying the application of the Rule of Reason to professional sports is interesting, because Antitrust Background most professional sports, basketball included, operate under the umbrella of a professional league. The term The Sherman Antitrust Act was passed in 1890 to “competition” is often viewed in the realm of profes- prevent unfair restraint of interstate trade. “Every con- sional sports as wins and losses, and not necessarily in tract, combination in the form of trust or otherwise, or the framework of finance. In the NBA for example, the conspiracy, in restraint of trade or commerce among the New York Knicks do not want to see the Boston Celtics several States, or with foreign nations, is hereby go out of business as that is bad for the collective declared to be illegal.”11 It is facially apparent that strength of the league, but the Knicks would not be excluding a talented basketball player of legal working unhappy if the Celtics did not win a single game all age from practicing his trade and earning millions of season. It is this differentiation between financial and dollars playing professional basketball based solely athletic competitive balance that has helped to limit the upon his age is a restraint of his trade. However, a clos- application of the Rule of Reason in professional er look at antitrust litigation will show how certain sports.18 restraints on trade have been allowed, and why LeBron James probably would have failed had he litigated this A landmark case in which a professional sports issue, due to the current CBA. As will be explored league was not afforded an exemption from antitrust below, precedential caselaw has established guidelines litigation due to a failure to meet the Rule of Reason for determining the reasonability of certain restraints on standard is Mackey v. National Football League.19 Here trade. However, other restraints have consistently been John Mackey brought suit against the NFL on antitrust deemed unreasonable per se, including price fixing, grounds claiming the “Rozelle Rule,” which forced market allocation, resale price maintenance, vertical ter- teams that had signed free agents from other teams to ritorial restrictions and, most importantly to LeBron compensate those others, was an unfair restraint of James’ case, group boycotts.12 trade which suppressed the free agent player market.20 In finding for the plaintiffs that the Rozelle Rule did, in Historically, one of the first arguments raised by fact, constitute an unfair restraint of trade based upon any professional sport against which an antitrust action antitrust legislation, the court established a three- has been brought, is that professional sports are granted pronged test to determine if a certain restraint should an antitrust exemption. This argument usually stems be exempted from antitrust regulation. The test sought from the exemption that has been bestowed upon pro- to establish: 1) If the restraint impacted only the parties fessional baseball.13 However, as the Supreme Court has involved; 2) if the disputed topic was a mandatory sub- explicitly limited this exemption to professional base- ject of the parties’ collective bargaining; and 3) if the ball, preferring not to perpetuate an earlier mistake, restraint was effectuated through arm’s-length bargain- such an argument fails.14 “[S]ince Toolson and Federal ing.21 As there was no mutuality between the parties, Baseball are still cited as controlling authority in the court found that the Rozelle Rule failed the Rule of antitrust actions involving other fields of business, we Reason test.22 However the court did state that such a now specifically limit the rule there established to the restraint would not be illegal per se had the parties col- facts there involved, i.e., the business of organized pro- lectively bargained for it, and even suggested that it fessional baseball.”15 Without having an exemption was in the best interests of the NFL and its players to from antitrust litigation at their disposal (as Major reach an agreement on how to govern the free agent League Baseball does), league officials in other sports market on their own, without litigation.23 The solutions have been forced to follow the same avenues in defend- proposed for the NBA listed at the end of this article ing themselves as the rest of corporate America. A takes this suggestion into consideration and will revisit widely used method of defending a restraint of trade the idea of both parties collectively bargaining to meet against antitrust litigation is to apply the Rule of Rea- their individual needs. son. Had the NFL passed the Rule of Reason test in Courts have developed the Rule of Reason specifi- Mackey, it would have been granted a non-statutory cally to determine if certain trade restraints should be labor exemption from coverage of the antitrust law. allowed. Essentially, the Rule looks to the restraint in an This concept has been applied in typical commercial attempt to balance its pro-competitive benefits with its antitrust cases, as well as those involving professional anti-competitive detriments. If the benefits outweigh sports.24 The backbone of all of these defenses is the the detriments, often the Rule of Reason allows the existence of a collective bargaining agreement between restraint to remain intact.16 “The true test of legality is the employer and the employee, such as the one

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 39 between the NBA and the NBPA. It is the language of restraint has already failed to meet the first qualification the CBA and the holdings of earlier labor law exemp- of the three-pronged test. Yet this is not the case. tion cases which significantly limited LeBron James’ McCourt upheld the Mackey ruling when it found chances of success had he brought suit. for the defense and held that the reserve system in effect in the National Hockey League was exempt from Labor Law Exemption and Collective Bargaining antitrust legislation due to a non-statutory labor exemp- As mentioned, the non-statutory labor exemption is tion.33 The Sixth Circuit did feel that in the absence of a a useful tool employed by professional sports leagues CBA an antitrust violation would have existed, but to circumvent antitrust rules. The non-statutory labor there was a CBA and evidence of good-faith arm’s- exemption enables an employer to enforce a provision length bargaining.34 Although it applied the principles that historically would be considered a per se violation espoused in Mackey, the Sixth Circuit came to a differ- of antitrust laws, assuming this provision was collec- ent conclusion by finding for the defense. The Sixth Cir- tively bargained for between the employees and the cuit was able to distinguish the two based on the third employer.25 There are three essential standards that prong of the test; where in Mackey it was found that the must be met in order for a restriction that has been col- negotiations were not at arm’s-length, in McCourt they lectively bargained for to be exempt from antitrust liti- were due to the strength of the National Hockey gation. First, to give priority to the collective bargaining League Players Association and the existence of a agreement, the restraint on trade proposed must princi- CBA.35 The holding that a party need not be successful pally impact only the parties to the agreement.26 Sec- in its bargaining, just that its opponents bargained in ond, the restriction in question must concern a manda- good faith at arm’s-length, could prove to be important tory subject of collective bargaining.27 Lastly, the to the NBPA and the NBA.36 “To say that the Company agreement that is sought to be exempted must be should have accepted the Union’s proposal on this issue reached through arm’s-length, good-faith bargaining.28 is to ignore the language of the statute that the obligation to bargain collectively ‘does not compel either In limiting eligibility for the NBA draft to persons party to agree to a proposal or require the making of a “ . . . whose high school class has graduated . . . ” the concession.’”37 NBA has excluded an entire segment of the population from practicing its trade.29 Essentially this constitutes a Unfortunately for James, in Wood v. National Basket- group boycott, a practice which is considered a per se ball Association, the Second Circuit held that when Leon violation of antitrust laws and is only allowed through Wood challenged the NBA draft and salary cap on a labor exemption.30 As it has been established that, by antitrust violations, although he was not yet a member his exclusion from the NBA draft, LeBron James was of the NBPA when it was negotiated or when his nego- victimized by a group boycott, it must also have been tiation rights were suppressed by the draft and salary determined that the NBA is afforded a non-statutory cap structure which the CBA had put in place, he was labor exemption that allows this boycott. Non-statutory considered to be bound to the CBA.38 Essentially, “this labor exemptions have been used in analyses of past lit- decision implies that all potential NBA rookies are igation involving professional athletic leagues.31 bound by those CBAs now in place. In addition, if the players agree to incorporate a minimum age require- An analysis of the NBA CBA will illustrate that the ment into a current CBA, this case suggests that early- league meets the requirements of the three-pronged entry candidates could not pursue a remedy under test, and thus the NBA is eligible for a non-statutory antitrust law.”39 In making this decision, the Second labor exemption from antitrust legislation. First, does Circuit relied more on policy analysis than on legal “ . . . the restraint on trade primarily affect only the par- precedent.40 The policy that the court relied upon was ties to the collective bargaining agreement”?32 The NBA set forth in the National Labor Relations Act (NLRA), CBA is an agreement between the NBPA and the NBA. which encourages collective bargaining between At face value, it would appear that an article of this employers and employee groups to stimulate commerce document that limits eligibility to the NBA draft to per- and prevent the obstruction of trade through strikes sons whose high school class has graduated would and work stoppages.41 However, the decision in the impact parties outside of the agreement. LeBron James Second Circuit becomes at least somewhat less influen- has not graduated from high school, has never been tial when one considers that both Mackey and McCourt affiliated with the NBA, and is not a member of the utilized the NLRA to apply the three-pronged test to NBPA. James has suffered directly due to the language determine if a non-statutory labor exemption would be of Article X, Section 5(a) of the CBA, in that he was granted, while the court in Wood seemed to utilize the barred from entry to the 2002 draft and he has been NLRA to justify failure to examine a potential labor restrained from practicing his trade of choice. As James exemption. Another reason James and his legal team is not a member of the NBPA, it would appear that this may have decided not to bring suit is that Wood was

40 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 drafted in the 1984 rookie draft, and it took until 1987 CBA, these minimum age requirements did constitute a for a decision, a negative one for him, to be reached.42 group boycott; because they had not been collectively Barring serious injury or unforeseen circumstances, bargained for at that time, a player such as James James is all but certain to be in the NBA 2003 season’s would have been eligible to sue on antitrust grounds. draft, which would be quicker than any litigation Unfortunately for James, Haywood’s successful would be to get him there. However this situation does challenge of this clause led to it becoming a condition present a practical reality not yet examined in the con- that is bargained for collectively between the NBA and text of professional sports. Where would James stand the NBPA. It is apparent that if this term was not nego- should he get hurt in the interval between the 2002 tiated in good-faith, arm’s-length bargaining, NBA draft from which he was barred and the 2003 draft in Commissioner David Stern would have increased the which he will participate? If he is injured in this period, eligibility requirement to 20 years old in an attempt to would he be able to sue the league for lost earnings due stem the flood of young players into the league.48 How- to its barring him from the 2002 draft? ever, “without the acceptance of the players union, such The next point for examination is whether draft eli- a rule cannot legally be imposed in the NBA because of gibility is a mandatory subject of the collective bargain- antitrust implications” such as those outlined above.49 ing agreement. It has generally been held that matters NBPA President Billy Hunter has responded to these that are considered to be mandatory subjects of collec- calls for a minimum age requirement by stating that the tive bargaining are those that affect wages, rate of pay, union would be willing to discuss this issue with the hours and other conditions of employment.43 This NBA, as no topics are off limits, “ . . . but it all has a prong of the test is satisfied, in that it can be held that price.”50 These comments indicate that neither side has by establishing when a person is eligible for entry into an unfair advantage over the other, and any subjects the NBA, there is contemplation of his potential wages. included in the CBA have been agreed upon through As indicated above in the discussion of the Wood case, good-faith, arm’s-length bargaining. persons not yet a member of either of the parties to the NBA’s CBA are governed by it. Wood implies that “ . . . Unless James was able to successfully challenge the all potential NBA rookies are bound by those CBAs policy-oriented decision in Wood and have it declared that he is not bound by the CBA, it is apparent that now in place.”44 It can be surmised that if a potential James would not have prevailed on antitrust grounds in NBA rookie is bound by the agreement, he is also taken a suit to gain entry to the NBA draft. Had it been held into consideration as a party to it. Therefore, establish- that one must actually be a member, and not just a ing a requirement of being of the age to have graduated prospective member, of the NBPA to be bound by the with one’s high school class limits when the person can CBA, James may have been declared eligible for the be eligible for the NBA, and therefore what his wages draft, been drafted, and then as soon as he signed his will be. By eliminating LeBron James and any other tal- contract he would have been governed by a CBA which ented high school junior (sophomore or freshman, for stipulates he had not met the eligibility requirements that matter) from the talent pool for the NBA draft for early entry into the draft. So while Wood failed to through the CBA, the NBA and NBPA have bargained even examine the existence of a non-statutory labor over when James can begin to earn wages in the NBA, exemption, it achieved a desirable result in that it pre- clearly a mandatory subject of collective bargaining. serves the strength of the union and its members.51 Finally, it can be concluded that the third prong of the test to grant a non-statutory labor exemption has Age Discrimination also been met. Evidence suggests that both sides collectively bargained for this restraint to be included in the As it stands now, the current article in the CBA CBA in good faith and at arm’s-length. The eligibility requiring that persons be of the age that their high requirement for the NBA draft has not always stated, as school class has graduated constitutes a group boycott it does now, that a person’s high school class must have under antitrust laws that is permitted to be perpetuated graduated in order for him to be eligible to be selected due to the non-statutory labor exemption. LeBron by an NBA team. Formerly, the restriction limited eligi- James’ cause of action did not necessarily have to be bility to those players who are four years removed from brought under antitrust grounds, however, and at first their high school graduation.45 This requirement was glance it would appear he is a victim of age discrimina- challenged successfully in Haywood v. National Basketball tion. The controlling statute on age discrimination is Association as being a violation of antitrust regulations The Age Discrimination in Employment Act of 1967 and constituting a group boycott.46 The Supreme Court (ADEA). The statute reads: cited the district court and noted how this group boy- It shall be unfair for an employer—(1) cott was an unfair restraint on Mr. Haywood’s trade, in to fail or refuse to hire or discharge any that it could retard the development of the skills of his individual with respect to his compen- 47 trade. Haywood shows that prior to its inclusion in the sation, terms, conditions, or privileges

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 41 of employment, because of such indi- the ADEA does not provide a remedy for reverse age vidual’s age; (2) to limit, segregate, or discrimination, the defense prevailed, just as the NBA classify his employees in any way would if James had brought a reverse good-faith suit which would deprive or tend to against them.59 deprive any individual of employment opportunities or otherwise adversely Although cases such as Hamilton illustrate that the affect his status as an employee, ADEA cannot be utilized to support a reverse age-dis- because of such individual’s age; or (3) crimination claim, there is no bar to making claims 60 to reduce the wage rate of any employ- under state statutes that are age-neutral. In Hulme v. ee in order to comply with this Barrett, it was held that “the federal Act does not pre- chapter.52 empt state age discrimination laws. . . . This action is brought under [Iowa’s] statute. Consequently we must In examining the language of the ADEA, it seems look to [Iowa’s] Act to determine if plaintiff is a protect- apparent that LeBron James would have been able to ed person.”61 Essentially, if a state statute does not pre- file a claim under this act against the NBA for age dis- scribe an actual age that is protected, all age groups are crimination. The problem lies in the fact that this statute protected from age-based discrimination. This has been was designed with older employees in mind, who were followed in other states.62 In Bergen Commercial Bank v. being marginalized by younger and cheaper alterna- Sisler, the New Jersey Supreme Court subjected New tives. In fact, the statute explicitly states that the cover- Jersey’s Law Against Discrimination (LAD) to statutory age of the statute “ . . . shall be limited to individuals interpretation in order to determine if its bar against who are at least 40 years of age.”53 This obviously employment discrimination based on age applied to excludes persons such as James from coverage and, youth.63 The court even used the term “reverse discrim- statutorily speaking, does not prevent him from being a ination”; although it also stated that in light of the cur- victim of reverse age discrimination. rent market trend favoring younger workers, the burden of proof would be heavy on any plaintiff.64 The While youth were not included in the ADEA, in court created this heavy burden by establishing a four- 1975 Congress passed the Age Discrimination Act step test for a plaintiff to establish a prima facie case of (ADA), which, although it applied only to federally discrimination. Each element must be fulfilled by a pre- funded programs, showed an acknowledgment by Con- ponderance of the evidence. The test calls for the plain- gress that often the youth are discriminated against as tiff to show: well by not setting an age limit on who was protected.54 If the ADEA had been worded similarly to the ADA, (1) background circumstances support- perhaps James would have had a legitimate claim. ing the decision that the defendant is Some critics of the ADEA believe that its wording the unusual employer who discrimi- should follow more closely that of the ADA, as the nates against his majority; (2) that he ADA provides blanket protection over all types of age was performing at a level that met his discrimination. Not only that, but the ADEA almost employer’s legitimate expectations; (3) becomes a directive favorable to workers over 40. In that he was nevertheless fired; and (4) addition, as the fact that since most older workers are that he was replaced with a candidate generally white males, the ADEA actually has an unin- sufficiently older to permit an inference tended result of discriminating against women and of age discrimination.65 minorities.55 The test established by the New Jersey Supreme While the ADEA explicitly limits its coverage to Court was tailored for the facts of the actual case, but in those over forty, it has been used as the basis for unsuc- examining them, one can suppose a similar test suited cessful reverse good-faith claims in the past. The most to James’ case would ask to show: (1) That the NBA is significant case based upon this claim is Hamilton v. the unusual employer who discriminates against his Caterpillar.56 The Seventh Circuit did not find for the majority; (2) that James could perform at a level that plaintiff on the basis of reverse age discrimination met the NBA’s legitimate expectations; (3) that never- under the ADEA, because although the plaintiff theless he was barred from entry to the NBA; and (4) claimed that age discrimination is similar to both racial that a candidate sufficiently older was drafted in his and gender discrimination, in that remedies can often stead. It is unclear, assuming this case was in a jurisdic- discriminate against the majority, the court saw no evi- tion that followed a similar holding, whether James dence that Congress viewed age discrimination as would prevail under this test. The first three elements such.57 In fact, the court goes so far as to say, “there is are met, in that the NBA does in fact discriminate nothing to suggest that Congress believed age to be the against youthful persons who could not yet have com- equal of youth in the sense that the races and sexes are pleted high school, all indications are that James can deemed equal.”58 Based on the above, and the fact that perform at the NBA level, and James is in fact barred

42 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 from entry at this point. However, the fourth element is plaintiff was barred access based solely upon gender to substantially harder to meet. The condition set out by a physical area technically under the control of the city the New Jersey Supreme Court, as well as the one pro- as lessor, while James’ situation bars a player entry to a posed here, both state the discriminated employee must private league that is probably not considered to be be replaced by an employee who is “sufficiently older.” entwined with the state. The rule contained in the CBA does not attach an age to Ludtke cited five factors the Second Circuit utilizes the draft eligibility requirement, but rather the stipula- to determine if something falls under the coverage of tion that the player’s high school class has graduated. state action. These were enumerated in Jackson v. Statler Further complicating James’ potential claim under this Foundation, where the plaintiff brought suit against a test is the fact that in the past the NBA has drafted a 72 player LeBron’s age (17), none other than Kobe charitable organization for racial discrimination. The factors were: Bryant.66 Additionally, it is not inconceivable that a person could graduate from high school at the age of 17. (1) the degree to which the “private” Thus the NBA could assert a defense that the require- organization is dependent on government embedded in the CBA is one of experience, and mental aid; (2) the extent and intrusive- not age. Experience is always a legitimate factor in hir- ness of the governmental regulatory ing new employees.67 scheme; (3) whether that scheme con- notes government approval of the State Action activity or whether the assistance is merely provided to all without such The potential exists for James or someone in a simi- connotation; (4) the extent to which the lar situation to bring a discrimination suit against the organization serves a public function or government under the guidelines of the Fourteenth acts as a surrogate for the State; (5) Amendment. The Fourteenth Amendment affords equal whether the organization has legitimate protection to all citizens in that it states: “[N]o state claims to recognition as a “private” shall make or enforce any law which shall abridge the organization in associational or other privileges or immunities of citizens of the United States; constitutional terms.73 nor shall any State deprive any person of life, liberty, or property without due process of law; nor deny to any Based upon the five factors outlined above, it person within its jurisdiction the equal protection of the would be difficult for a player who brings suit against laws.”68 Essentially what a plaintiff must do to bring the NBA to prove that the league is a state actor. The such a claim against a private entity is to show that a NBA as a collective league is not dependent on govern- “ . . . private party is performing a ‘public function’, act- mental aid, there is no governmental regulatory scheme ing under ‘state compulsion’, whether there is a ‘nexus’, relating to the league, and it would probably be held or ‘joint action’ between the private party and the gov- that the NBA does not serve a public function or act as ernment.”69 a surrogate for the state. If one were to bring a suit against the league in which numerous causes of action It is a difficult undertaking to show that the entire were prescribed (as in the Sprewell case outlined below), NBA is performing a public function, acting under state perhaps a charge of state action could be explained by compulsion, or entwined in a joint action with the gov- the reliance of the government on NBA players’ income ernment. On a team-by-team basis, this claim may be taxes. There are 30 teams in the league; each with a ros- easier to prove, as many individual sports teams work ter of 12, plus injured players, and the average salary is closely with their local city and state governments. This measured in the millions of dollars. The majority of the is illustrated in Ludtke and Time, Inc. v. Kuhn where a NBA players are paid enough to be taxed at the highest female reporter sued after being refused access to the income tax percentage, 39.1 percent.74 Combining the New York Yankees’ clubhouse for post-game interviews revenue created locally in terms of sales tax and the rev- 70 during the 1977 World Series. The district court held enue created nationally due to the players’ income tax, that in this instance, New York City’s involvement with one could attempt to present the fact that the NBA does Yankee Stadium was significant enough to consider this in fact serve a public function. This is unlikely to be a state action. Because the City of New York had affirmed in court, but a sympathetic judge may rule dif- acquired Yankee Stadium through eminent domain and ferently. For example in Stevens v. New York Racing Asso- then leased the premises to the Yankees, it was found ciation, Inc., the plaintiff was able to successfully allege that the public and private entities were so entwined state action due to the state’s collection of tax revenue that a state action claim could be brought for the dis- from the defendant sporting association.75 However, 71 crimination exercised against female reporters. It is this could also be distinguished from a claim against important to note the fundamental difference between the NBA, as the tax revenue in question in Stevens is the Ludtke case and James’ situation. In Ludtke, the derived from a law creating the NYRA for the purpose

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 43 of New York State obtaining tax revenue from wagering have been able to examine old decisions to see where on thoroughbred racing.76 his best chance of gaining victory was in a trial, he now must subject himself to the whims of the arbitrator and A high-profile decision in California concerning not know what his chances of victory are until after his current Knicks guard Latrell Sprewell demonstrates that hearing. James or any other player who brings suit against the NBA would struggle to establish the NBA as a state actor, thus affording the plaintiff protection under the Solutions to Youth in the NBA Fourteenth Amendment.77 In Sprewell, the plaintiff This article has analyzed some of the approaches brought a litany of charges against his employer follow- LeBron James may have taken had he decided to sue ing his suspension for viciously attacking his coach not the NBA to gain eligibility for the draft. His predica- once, but twice during practice. The court flatly rejected ment has been analyzed through an examination of the plaintiff’s claim that the defendants were state antitrust law, labor exemptions and statutory responses actors, barely even dignifying the charge with an expla- to age discrimination. Although it appears that he may nation of its dismissal.78 Ludtke illustrated how an indi- not have had success with any of these avenues, some vidual sports franchise can be entwined with the local of his potential courses of action, had they not been suc- government to the point of being considered a state cessful, might have at least opened the door for future actor, but that was not the case with the Golden State lawsuits to challenge these same eligibility rules with Warriors. Noting how quickly this charge can be defeat- more success. ed against a single club operating under NBA guidelines, one can only imagine the difficulty in establishing Although many view LeBron James’ talent as the entire league as a state actor. unique, in the coming years there will be more and more young players contemplating making the jump If, however, a plaintiff is able to establish the NBA from high school underclassmen to NBA draftees. If as a state actor, he can employ Shelley v. Kramer to NBA executives truly want to stem this trend of defeat the minimum age requirement.79 In Shelley, the younger and younger players wanting to enter the Supreme Court refused to enforce a private, restrictive NBA, they will have to take action soon. With each covenant that excluded African-Americans from the use young player that successfully makes the transition or ownership of land within a certain area.80 The Court from high school to the NBA, more attention is drawn maintained that privately, the property owners were to even younger players, touting them as NBA hope- free to impose such restrictions, but once the courts fuls. This summer, for the first time ever, Nike invited have been called upon for enforcement, it becomes a two eighth-graders, Derrick Caracter and Demond state action.81 The holding in Shelley suggests the Court Carter, to its prestigious summer camp for high school will not enforce any discriminatory regulation, such as basketball stars.83 Other underclassmen are already Article 10, section 5(a) of the NBA CBA, but one should gaining national exposure, including Brooklyn junior be cognizant of the fact that a court will see a large dif- Sebastian Telfair who was recently featured on the ference between a regulation which discriminates on cover of Slam with LeBron James.84 the basis of race as opposed to youth. Perhaps one of the simplest solutions possible is for the two parties, the NBA and the NBPA, to collectively Arbitration bargain with each of their goals in mind. NBA leader- Another topic which warrants mentioning is the ship wants to slow the trend of younger players coming fact that Article XXXI of the NBA CBA stipulates that to the NBA, whether it is for player-development rea- “[a]ny dispute (such dispute hereinafter being referred sons as commissioner David Stern maintains, or for to as a “Grievance”) involving the interpretation or financial reasons as NBPA president Billy Hunter application of, or compliance with, the provisions of alleges.85 The number-one roadblock to underclassmen this Agreement . . . shall be resolved exclusively by the eligibility right now is the NBA collective bargaining Grievance Arbitrator in accordance with the procedures agreement that is afforded a non-statutory labor exemp- set forth in this article.”82 This article has analyzed pri- tion from antitrust legislation and specifically prohibits marily what would happen in a similar case in a court the entry of these younger players. A solution exists of law, while the CBA explicitly states that an arbitrator that can be negotiated into the next CBA, which would will settle all grievances. This is problematic for James solve both parties’ goals: The NBA’s dual goals of fiscal or a player in a similar position who assembles a legal responsibility and continued player development, as team in an attempt to fight the CBA’s restriction on well as the NBPA’s goal of meeting the best interests of draft eligibility and studies only the above-mentioned all persons who would be bound by the CBA. case law. If the case goes before an arbitrator and not a Currently there is a strict rookie salary cap imple- jury, then although all of those cases would be influen- mented by the CBA which restricts wages based on tial, they would not be precedential. While James may

44 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 draft position, and also deems that any player selected Endnotes in the first round be bound to his club for three years 1. NBA.com, Draft NY02, Players by Status (available at with a club option for the fourth season.86 Perhaps in http://www.nba.com/draft2002 (June 29, 2002)). the negotiations for the next CBA, one of the parties can 2. Id. suggest that the NBA rookie salary cap become a func- 3. NBA.com, Draft NY02, Early Entry Candidate History (available at tion of experience. The cap should assume a minimum http://www.nba.com/draft2002/history/index.html (June 29, of two years’ college experience, as this would fall into 2002)). line with the 20-year-old age restriction Stern would 4. Id. like to propose. For any college season past the stan- 5. NBA.com, Kevin Garnett, Player Biography (available at dard amount, the player can have a year knocked off http://www.nba.com/playerfile/kevin_garnett/bio.html (June his contract, thus granting him free agency and a bigger 29, 2002)). contract earlier in his NBA career than is presently 6. NBA.com, Kobe Bryant, Player Biography (available at allowed. However, if a player has fewer than two years http://www.nba.com/playerfile/kobe_bryant/bio.html (June 29, 2002)). of college experience, each year he is short should be added on to the contract. Thus if James entered the 7. Dan Wetzel, He’s Ready Now, But James Must Wait for Hoop Riches (available at http://www.sportsline.com/b/page/ league under this hypothetical CBA this season, his ini- pressbox/0,13284851404,00.html (last updated Jan. 16, 2002)). tial contract would be for six years with a club option 8. NBA-NBPA Collective Bargaining Agreement, Art. X, § 5(a). for a seventh. This ensures that no player who fears sac- 9. CNNSI.com, The Commish’s Wish, Stern Wants Limit to Deter rificing millions of NBA dollars by risking an injury at Underclassmen (available at http://www.cnnsi.com/basket- the intercollegiate or even high school level would be ball/nba/1999/draft/news.html (last updated June 24, 1999)). forced to do so, but it also ensures that a team which 10. Lang Whitaker, Player President, Slam, Vol. 9, No. 6, at 30 (2002), drafts a high school player is able to retain the rights to statement of NBPA executive director Billy Hunter: this player long enough for him to develop. The NBPA The main problem I have with an age limit is this: may be averse to adopting such an agreement, however, The owners are constantly trying to achieve “cost as many of its current members have not met the two- certainty,” so that they can project their finances. The rookies are currently locked in a three-year college-year requirement. Perhaps a significant wage wage scale. Then the team has an option in the increase after the season that would have been their fourth year, then an option of first refusal in the second intercollegiate season would help the players fifth year. See, if you’re in years one through five, accept this proposal. the most a team can pay you is something like $10 million. When the first contract runs out, you get Another implementation the NBA may want to con- your first big [free agent contract]. And the high school kids are going to get there a lot faster than sider would be to reword the eligibility section in the a college kid. A high school kid is going to be 28 CBA. Although it was concluded above that requiring a when he gets his [second hit], and he’ll get anoth- player’s class to have graduated from high school er one after that when he’s 33 or 34. But if you’re would probably withstand an good-faith suit, the NBA 22 when you come in, and you sign a five-year deal, then you’re 27 when you get your first hit. can remove all doubt by rewording it to be more experi- You sign a six or seven-year deal, then you’re 34 ence-oriented. As it was noted above, experience is or 35. always a qualifying factor in considering new employees, and this should be kept in mind in the drafting of 11. 15 U.S.C.A § 1. the new CBA.87 Instead of limiting eligibility to a per- 12. See United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S. Ct. 811 (1940), U.S. v. Topco Assocs., 405 U.S. 596, 92 S. Ct. 1126 son “whose high school class has graduated,” perhaps (1972), Dr. Medical Co., v. John D. Park & Sons Co., 220 U.S. 373, it can be rewritten to limit eligibility to persons who 31 S. Ct. 376 (1911), U.S. v. Arnold Schwinn & Co., 388 U.S. 365, 87 have played a senior season at the high school level. S. Ct. 1856 (1967), and Klor’s, Inc. v. Broadway-Hale Stores, 359 This would unintentionally exclude players who are U.S. 207, 79 S. Ct. 705 (1959). academically ineligible to play their senior seasons, so 13. See Federal Baseball Club v. National League, 259 U.S. 200 (1922) an addendum should be added that if the player did and Toolson v. New York Yankees, Inc., 346 U.S. 356 (1953). not participate in his senior season, high school gradua- 14. See Radovich v. National Football League, 352 U.S. 445, 451 (1957). tion is necessary. This proposal would be a brighter line 15. Id. of demarcation in determining draft eligibility, and the 16. See Standard Oil Company of New Jersey v. U.S., 221 U.S. 1 (1911) NBA would defeat any reverse good-faith claims by and Board of Trade of City of Chicago v. U.S., 246 U.S. 238, 244 stating the requirement is there to ensure that all eligi- (1918). ble players have at least the experience of playing a sen- 17. Board of Trade of City of Chicago, 246 U.S. at 244. ior season at the high school level, or the maturity of a 18. See Smith v. Pro Football Inc., 420 F. Supp. 738, 745-46 (D.D.C. high school graduate, and that age has nothing to do 1976), aff’d in part, 593 F.2d 1173. James “Yazoo” Smith brought this suit against the league that questioned the legality of the with it. NFL rookie draft under antitrust law. The district court, in rejecting the NFL’s application of the Rule of Reason, noted the

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 45 differentiation between athletic competitive balance and the eco- 35. Id. at 1202. nomic competition the Sherman Act was seeking to promote: 36. Id. at 1201. According to the defendants’ arguments, if a free 37. Id. market for player talent existed today in professional football, the league’s current competitive 38. Wood v. National Basketball Association, 809 F.2d 954, 959-60 (2d balance would be irretrievably destroyed. . . . Cir. 1987). According to this argument, the owners of the 39. Jeffrey Paul Fuhrman, Can Discrimination Law Affect the Imposi- NFL franchises . . . do not care if they lose money tion of a Minimum Age Requirement for Employment in the National on the operation of their teams, as long as they Basketball Association?, 3 U. Pa. J. Lab. & Emp. L. 585, 596 (2001). win games, i.e. they do not conform to the principles of economic decision-making upon which the 40. See Wood, 809 F.2d at 959, which states: antitrust laws are premised. We need not enter this debate or probe the exact contours of the so-called statutory or non-statuto- 19. Mackey v. National Football League, 543 F.2d 606 (8th Cir. 1976). ry “labor exemptions,” however, because no one 20. Id. at 609. seriously contends that the antitrust laws may be used to subvert fundamental principles of our fed- 21. Id. at 623. eral labor policy as set out in the National Labor 22. Id. Relations Act. 29 U.S.C. §§151-169 (1982). Wood’s 23. See Mackey, 543 F.2d at 623 which states: claim is just such a wholesale subversion of that policy, and it must be rejected out of hand. As a It may be that some reasonable restrictions relat- result, whether the draft and salary cap are per se ing to player transfers are necessary for the suc- violations of the antitrust laws or subject to rule of cessful operation of the NFL. The protection of reason analysis need not be decided. mutual interests of both the players and the clubs may indeed require this. We encourage the parties 41. See 29 U.S.C.A. § 151, which states that: to resolve this question through collective bargain- It is hereby declared to be the policy of the United ing. The parties are far better situated to agreeably States to eliminate the causes of certain substantial resolve what rules governing player transfers are obstructions to the free flow of commerce and to best suited for their mutual interests than the mitigate and eliminate these obstructions when courts. . . . However no mutual resolution of this they have occurred by encouraging the practice issue appears within the present record. Therefore, and procedure of collective bargaining and by pro- the Rozelle Rule, as it is presently implemented, tecting the exercise by workers of full freedom of must be set aside as an unreasonable restraint of association, self-organization, and designation of trade. representatives of their own choosing, for the pur- 24. See U.S. v. Hutcheson, 312 U.S. 219 (1941), Allen Bradley Co. v. pose of negotiating the terms and conditions of Local Union No. 3, 325 U.S. 797 (1945), Meat Cutters v. Jewel Tea their employment or other mutual aid or protec- Co., 381 U.S. 676 (1965), United Mine Workers of America v. Pen- tion. nington, 381 U.S. 657 (1965), Connell Construction Co. v. Plumbers 42. Wood, 809 F.2d at 958. & Steamfitters, 421 U.S. 616 (1975), and Smith v. Pro-Football, 420 F. Supp. 738 (1976). 43. Subjects of Mandatory Collective Bargaining Under Federal Labor Relations Act, 12 ALR2d 265, (1950). 25. See Meat Cutters, 381 U.S. at 689-90, which states in substance that a restriction related to wages, hours, or working conditions 44. Fuhrman, 3 U. Pa. J. Lab. & Emp. L. at 595. which is obtained through good faith bargaining between the 45. See Haywood v. National Basketball Ass’n, 401 U.S. 1204, (1971). parties is protected from national labor policy and therefore exempt from the Sherman Act. 46. Id. at 1205. 26. In re Detroit Auto Dealers Ass’n, Inc., 955 F.2d 457, 463 (1992). 47. See Haywood, 401 U.S. at 1205, which states: 27. Id. If Haywood is unable to continue to play professional basketball for Seattle, he will suffer 28. Id. irreparable injury in that a substantial part of his 29. NBA CBA Art. 10, § 5(a). playing career will have been dissipated, his physical condition, skills and coordination will deterio- 30. See Fashion Originator’s Guild of America v. Federal Trade Commsi- rate from lack of high-level competition, his public sion, 312 U.S. 668, (1941) which held that a boycott of retailers acceptance as a super star will diminish to the who had used imitated garment designs (which had not been detriment of his career, his self-esteem and his copyrighted) was illegal under antitrust rules. When trying to pride will have been injured and a great injustice reconcile antitrust discussion in a commercial sense with will be perpetrated on him. antitrust discussion in the context of sports, one should recognize the professional leagues as buyers and the athletes as sell- 48. “The Commish’s Wish, Stern Wants Limit to Deter Underclass- ers. By limiting draft eligibility to those whose class has gradu- men” (available at http://www.cnnsi.com/basketball/nba/ ated from high school, the NBA has effected a group boycott 1999/draft/news.html (last modified June 24, 1999)) cited in against all underclass students. Fuhrman at 589. 31. See Mackey v. National Football League, 543 F.2d 606 (8th Cir. 49. Fuhrman, 3 U. Pa. J. Lab. & Emp. L. at 589. 1976), and McCourt v. California Sports, Inc. 600 F.2d 1193, 1203 50. Lang Whitaker, Player President, Slam, Vol. 9, No. 6, at 30 (2002). (6th Cir. 1979). 51. Scott R. Rosner, Must Kobe Come Out and Play? An Analysis of the 32. Mackey, 543 F.2d at 614. Legality of Preventing High School Athletes and College Underclass- 33. McCourt, 600 F.2d at 1203. men From Entering Professional Sports Drafts, 8 Seton Hall J. Sport 34. Id. L. 539, 565, which reads:

46 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 To hold that unions may not sacrifice the interests of an employee or potential employee can be a bona fide occu- of those outside the bargaining unit in order to pational qualification. . . . Saying that a person is not experi- advance the interests of its constituents would enced or mature enough, when experience or maturity is a bona bring chaos to collective bargaining across all fide occupational qualification, does not necessarily constitute industries and weaken unions, as they would lose unjust discrimination.”). a significant amount of leverage in bargaining due 68. U.S.C.A. Const. Amend. XIV, § 1. to the loss of a valuable chit. While professional sports are unique in many respects, this should 69. Behagen v. Amateur Basketball Ass’n of U.S., 884 F.2d 524, 530 (10th not subject the collective bargaining that occurs in Cir. 1989). this context to a higher standard than other indus- 70. Ludtke and Time, Inc. v. Kuhn, 461 F. Supp 86, (New York 1978). tries. 71. Id. at 93-96. 52. 29 U.S.C.A. § 623. 72. Jackson v. Statler Foundation, 496 F. 2d 623, (2d Cir. 1974). 53. 29 U.S.C.A. § 631. 73. Id. at 629. 54. See 42 U.S.C.A. § 6102, which reads: 74. Personal Exemptions and Individual Income Tax Rates, 1913-2002, Pursuant to regulations prescribed under section (available at http://www.irs.gov/pub/irs-soi/02inpetr.pdf). 6103 of this title, and except as provided by sec- 75. Stevens v. New York Racing Ass’n, Inc., 665 F. Supp 164 (E.D.N.Y. tion 6103(b) and section 6103(c) of this title, no 1987). person in the United States shall, on the basis of age, be excluded from participation in, be denied 76. Id. the benefits of, or be subjected to discrimination 77. Sprewell v. Golden State Warriors, 199 WL 179682 (N.D. Cal. 1999). under, any program or activity receiving Federal Id. financial assistance. 78. 79. Shelley v. Kramer, 334 U.S. 1 (1948). 55. Fuhrman, 3 U. Pa. J. Lab. & Emp. L. at 602. 80. Id. at 4-5. 56. Hamilton v. Caterpillar, Inc., 966 F.2d 1226 (7th Cir. 1992). 81. Id. at 13-14. 57. Id. at 1227. 82. NBA CBA, Art. XXXI, § 1(a). 58. Id. 83. Andy Katz, Caracter, 14, arrives ahead of schedule, (available at 59. Id. at 1228. katz_andy/1404269.html, (last updated July 12, 2002). 60. See Hulme v. Barrett, 449 N.W.2d 629 (Iowa 1989). 84. Slam Vol. 9 No. 6 (2002). 61. Id. at 631. 85. See Whitaker, supra note 10. 62. See Zanni v. Medaphis Physician Services Corp., 612 N.W.2d 845, 86. NBA CBA Art. 8, § 1(c). (Michigan 2000), and Bergen Commercial Bank v. Sisler, 723 A.2d 944, (New Jersey 1999). 87. Hamilton, 966 F.2d at 1227. 63. Bergen, 723 A.2d at 949. 64. Id. at 960. Christopher B. Abbott is currently in his second year of law school, in the night program, at St. Johns 65. Id. at 959. University School of Law in Jamaica, Queens. A 1998 66. NBA.com, Kobe Bryant, Player Biography (available at http://www.nba.com/playerfile/kobe_bryant/ bio.html (June graduate of the College of the Holy Cross in Worces- 29, 2002)). ter, MA, Chris is interested in pursuing a career in 67. Bryan B. Woodruff, Note, Unprotected Until Forty: The Limited sports law following his completion of law school. Scope of the Age Discrimination in Employment Act of 1967, 73 Ind. L.J. 1295, 1310 (1998) (which reads, “The experience or maturity

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NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 47 Defining Artists’ Rights and Alternatives: Ownership of the Creative Message By Damien Granderson (Law Student Initiative Winner)

Recording artists are challenging their long-term power to level the playing field. Under a “standard” exclusive recording agreements with their respective industry contract, the artist will typically be obligated record companies. While artists have valid justifications to deliver up to seven albums, which can take over 15 for their arguments of indentured servitude, there are years to satisfy. Under such contracts, labels avoid con- preventative measures available that can maximize crete obligations to release, market or promote the their economic return and assist in realizing their artists or their recordings. Moreover, many labels—to dreams. their benefit—utilize arcane and antiquated accounting provisions, which lead to unconscionable results.4 The Exclusive Recording Agreement It is illogical for an artist to enter into a contract A record company’s most valuable assets are its yielding limited financial return, but this is often the artists and the copyrights they create. Signing a new reality of a record deal for aspiring artists. The label’s artist is a business decision that involves the commit- ability to provide exposure necessary to launch a career ment of substantial expenditures, not only in the form provides it a strong negotiating position, dissolving the of royalty advances to cover recording, but also the “bargaining” in a bargained-for agreement. As a result, costs of manufacturing, promotion, and tour support. artists’ choices have been limited when signing with On estimate, a record company spends a minimum of record companies. Due to the hardships experienced $500,000 signing a new act, and this figure does not under these long-term deals, artists have sought include extra promotional efforts or hours put in by changes that will level the playing field and afford them staff.1 In light of this expense, the company wants to be better protection. sure it is dealing with an artist capable of recouping its investment and earning a profit. For these reasons, a Seven-Year Statute5 record company will zealously protect its interests California Labor Code § 2855 states: “(a) Except as when securing a recording agreement. otherwise provided in subdivision (b), a contract to ren- Generally, the recording contract is an exclusive der personal service . . . may not be enforced against the personal service agreement whereby the artist furnishes employee beyond seven years from commencement of master recordings embodying unique vocals and musi- service under it.”6 The California legislature enacted cal performances to the record company. In turn, the this seven-year limitation on all forms of personal serv- label has the exclusive right to manufacture, promote, ice contracts to prevent exploitative practices of binding and market these records to the public and to pay the new acting talent to long contracts. This practice was artist a royalty on the records sold. The royalty range typical in early Hollywood days where movie studios for a new act is generally around 7 to 12 percent of the marketed movies by over-promoting actors to increase suggested retail price for domestic sales and less for box office revenues. To recoup their promotional expen- international sales.2 Established acts can command 12 to ditures, movie studios would bind new talent to con- 16 percent and some superstars are able to get as much tracts exceeding ten years with salaries below market as 20 percent.3 Deductions which substantially reduce value.7 In de Haviland v. Warner Brothers Pictures,8 the the amount of money the artist will actually receive court held that the maximum amount of time an agree- include: Packaging deductions, excise taxes, free goods, ment for personal service could last was seven calendar reserves for returns, royalty reductions, recording costs, years, not seven years of service. The court, in constru- advance against royalties, cross-collateralization and ing section 2855, dismissed the producer’s claim that it producers’ royalties. Labels often sign artists to lengthy was appropriate to extend the actress’ contract beyond contracts to protect their investments and to keep suc- seven years to make up for non-performance during cessful artists from signing with competing companies. their agreement.

Resulting Inequities In response to the protection afforded to artists, record companies lobbied to add subdivision (b) to sec- The recording contract is strictly a business relation- tion 2855, which became known as the recording artist ship. In theory, contracting parties should have equal exception: leverage, but realistically, the artist lacks the bargaining

48 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 Notwithstanding subdivision (a): imposing contractual liability on recording artists while protecting other similarly situated entertainers. (1) Any employee who is a party to a Although Love eventually settled out of court, Judge contract to render personal service in Wasserman ruled that she could seek declaratory relief the production of phonorecords in that section 2855(b) was unconstitutional in practice which sounds are first fixed . . . may and that it calculates lost profits too speculatively.15 not invoke the provisions of subdivi- Love’s case placed the spotlight on the recording indus- sion (a) without first giving written try’s practices and prompted those affected to lobby for notice to the employer. their respective interests. * * * The Movement for Artist Rights (3) In the event a party to such contract Negotiations to resolve differences between artists is . . . required to render personal serv- and labels have generally been unsuccessful. Despite ice in production of a specified quantity the $41 billion grossed by record companies in 2000, of the phonorecords and fails to render they contend that section 2855(b) is necessary to justify all of the required service . . . the party the millions of dollars invested to promote and develop damaged by the failure shall have the new artists who end up being unprofitable.16 They fur- right to recover damages for each ther argue that established artists would be intentional- phonorecord as to which that party has ly unproductive during the term of their respective 9 failed to render service. agreements and later claim that the contracts had Essentially, if an artist is signed to a recording con- expired after seven years. Despite this contention, one tract but cannot produce the required number of industry executive estimated $950,000 in costs for albums to the record company’s satisfaction in the launching an artist who eventually went platinum.17 seven-year period of time and wants to withdraw from The label recouped $450,000 from the artist’s royalties the contract, the record company can sue for damages and received income in the amount $3,500,000 ($3.50 for uncompleted albums. At best, because of this threat per unit for one million units).18 of damages, artists are forced to renegotiate with their The co-founder of Recording Artists Coalition 10 11 labels. Courtney Love, Don Henley and Metallica are (RAC), Don Henley, stated, “[n]egotiations [between the just a few of the artists that have challenged this excep- industry and the artists] are over,”19 indicating the next tion, only to eventually settle out of court. step for the artists is to seek straight repeal under the In September 2001, the Los Angeles Superior Court proposed State Bill 1246.20 The Recording Industry allowed Courtney Love to proceed with a claim against Association of America (RIAA) represents record com- her former record label challenging section 2855(b). A panies and conceded some points, including the reduc- ruling against section 2855(b) would set a precedent tion of the number of albums for which damages are because it would allow artists who are unhappy with recoverable.21 However, the RIAA refused to concede their long-term recording agreements to abandon them retroactivity because “contracts [ ] have been negotiat- and explore alternatives for getting their music to the ed, advances [ ] have been paid by the terms of the cur- public. rent law, and to say the contracts are retroactive would give current artists the benefits of all the new limits on Love was disappointed with DGC’s promotion for damages, but the record companies would get no her last album Celebrity Skin and refused to record the advantages. You can’t change the rules of the game in five remaining albums under contract. The company the middle.”22 sued Love under section 2855(b) claiming breach of contract.12 DGC’s parent company, Universal Music California Senator Kevin Murray, who introduced Group (UMG), sought expensive damages and a nega- State Bill 1246, retracted the version proposed in Janu- tive injunction. Love counter-sued, arguing the request- ary 2002 for a more comprehensive legislative package ed release would in effect be indentured servitude, forc- to be introduced that will include the seven-year repeal ing her to serve the label until the contracted albums bill, artists’ health care and pension benefits and strin- were delivered.13 Arguing that any profits under a new gent measures imposed on record companies’ account- agreement would be given to the old company through ing practices.23 Murray and RAC’s co-counsel Jay Coop- speculative damages, Love contended that the artist er believe they “were gaining momentum,” but exception frustrates the legislative purpose behind sec- introduction of the more comprehensive package would tion 2855(a) because artists are forced to serve the be more attractive because they were uncertain whether record company beyond seven years.14 She further they had enough votes to pass the bill in its current argued that the exception violates equal protection by form.24 Artist Don Henley, who has recorded for half-a-

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 49 dozen labels in his 35 years in music, stated, “[i]f a com- Ray Charles exercised this approach in his licens- pany wants long-term stability from an artist then the ing deal with ABC-Paramount. In 1959, after several company ought to be able to [guarantee] some stability successful years at Atlantic Records, Charles requested to the artist.”25 Keeping artists under contract for an that his masters revert back to his ownership. He subse- indefinite amount of time does not permit the acts to quently licensed his masters to Dunhill Compact Clas- realize their true market value. “Once every seven sics and to Rhino Records, who specialize in reissue years, an artist should be able to go into the market- material. Charles asserted, “It comes down to music place and get his full worth.”26 The RIAA countered the I’ve worked hard to create, and I want to own it accusation that artists are kept out of the studio, saying myself.”29 that many choose to seek film and television work that 30 limits the time they spend on their music. Joint Venture Agreement In a joint venture agreement, the artist forms a pro- In October 2002, New York State Assembly Speaker duction entity and then enters into a “partnership” with Sheldon Silver, Assemblyman Roger Green, the Artist the distributing record company. Both parties place all Empowerment Coalition (AEC) and L. Londell McMil- income into a common fund, from which they eventual- lian proposed legislation, known as the “Artistic Free- ly deduct all expenses and ultimately will equally split dom Act,” which would limit the length of recording the remaining proceeds. This option is only available to contracts and give unrepresented artists the right to ter- artists who have the resources to support their end of minate at the end of three years and represented artists the financial obligations. Furthermore, only commer- termination rights after seven years. Supporters’ argu- cially successful products will reap the long-term per- ments are similar to California lobbyists’, indicating unit profits associated with a joint venture arrange- “[l]ocking aspiring artists into exclusive contracts that ment. Thus, an artist with a moderate to unsuccessful can last for decades creates a situation where these indi- product would fare better under a royalty agreement, viduals or groups are exploited and taken advantage of because in that situation, the record company would for their entire music-making careers . . . these contracts absorb all of the initial costs, instead of sharing them in are not only inherently unfair, they also curb artistic the joint venture. expression.”27 McMillian adds, “In too many instances, artists have been creatively and financially abused due The artist KRS-One, under his production entity to contracts of unfair and long-term servitude. It is time Front Page Recordings, entered into a joint venture for a business model in the music industry that places a agreement with Koch Entertainment/In the Paint, in fiduciary duty on record labels as well as reasonable which he retained partial ownership of his masters, limits to long-term recording contracts.”28 allowing Koch to distribute and market his albums. This agreement has given KRS-One the support and Ownership Alternatives vs. Exclusive Recording control over his musical content, transitioning from hard core to gospel rap. Master P and Cash Money Mil- Contract lionaires also exemplify a trend among contemporary Artists’ Copyright Ownership artists who develop a substantial market for their music prior to entering a joint venture agreement with a major Licensing Agreement label. Typically, a record company will own all the rights, including the copyright, to the master recordings of its Pressing and Distribution Deal31 signed artists. Insightful attorneys representing artists A pressing and distribution agreement (“P&D will negotiate a transfer of masters ownership to the deal”) is an alternative available for artists with enough artist upon contract expiration. Generally, due to poten- financial resources to gain more control over their tial profits of back catalogs, companies are hesitant to music and to receive a higher profit margin if the ven- relinquish ownership of masters. Artists that wish to ture is successful. Under a P&D deal, the artist forms a avoid problems associated with recording contracts and production company and relies upon profit participa- want to maintain ownership and control over their mas- tion instead of a royalty in its agreement with the ters should try to enter into licensing agreements with record company. Essentially the artist will sell the record companies. records to the distributing company for a wholesale Assuming the artists have a valid copyright in their price less a negotiated distribution fee, which is akin to masters, they can sell some or all of their exclusive a royalty, and will cover the distribution company’s rights to the company for a limited period of time. The overhead, operations and profit. From this amount, the label would then be authorized to sell and distribute production company pays manufacturing, mechanical the masters, but not to assign these rights. royalties, artist royalties, promotion, overhead, salaries and pressing royalties.

50 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 A drawback to a P&D deal is that the distribution of the recording. One caveat to this approach, in addi- companies do not usually provide support in terms of tion to the financial costs associated with re-recording, accounting, promotion or marketing. In addition, the is that most exclusive recording agreements provide deal may potentially be affected by the distribution some variation of the following unconscionable re- company’s bias toward its own products.32 recording restriction clause: Curtis Mayfield utilized a P&D arrangement at a Artist shall not perform any selection time when “it was unheard of for a performer/song- recorded hereunder or embodied on a writer to own his [ ] publishing, let alone his masters.”33 master delivered hereunder . . . (i) for a A material point of the deal was that Mayfield would period of five (5) years after the date of retain ownership in his masters. Ultimately, after May- delivery of the respective master con- field’s death in 1999, his business foresight materialized taining such selection or (ii) for a peri- into The Mayfield Family Trust. His widow is the od of two (2) years after the expiration or immediate beneficiary and owns the foreign rights to other termination of this Agreement, his work. “It was important to Curtis to own as much whichever is later.39 of himself as he could,” which is why he entered into 34 this type of deal. Conclusion Despite the increasing sophistication of artists, Artist Options When Bound to an Exclusive many never come to terms with the fact that entertain- Recording Agreement ment is a mix of art and business, but mostly business. Buy-back Copyrights In order for an act to expand artistically or to become an entertainment entrepreneur, it must educate and With the increasingly vital role that catalogs play in familiarize itself with the realities and alternatives in contributing to record companies’ bottom lines, in the the music industry. In our country where artists’ images future all artists could face even tougher battles when are worshipped, words are memorialized and personal trying to reclaim or negotiate ownership of their mas- lives scrutinized, how is allowing a third party to capi- ters. Entertainment attorney L. Londell McMillian notes talize creativity without affording artists their just that “buy-back of masters is something that’s not nor- deserts justified? Essentially, the issue is not one of 35 mally going to happen.” money but of merit, the receipt of due. In the end, as it However, there are a few instances where an artist was to Curtis Mayfield, it is important to each individ- has been successful in regaining possession of his mas- ual to “own as much of” ourselves as we can. ter recordings. For example, Warner Brothers owned Al Jarreau’s masters for his first six albums but after that, Endnotes he was allowed to “split up the deal,” also signing with 1. See Xavier M. Frascogna, Jr. and H. Lee Hetherington, The Busi- WEA International, where he has a huge audience. ness of Artist Management 130 (1997). These albums are now licensed to Universal outside the 2. See William Krasilovsky and Sidney Shemel, This Business of U.S., with Jarreau maintaining international rights. “It’s Music: The definitive guide to the music industry 19 (8th ed. an annuity . . . [t]hey put the records out, he gets paid, 2000). and he still owns them. It’s great for any artist when he 3. See id. 36 or she can get some control of their life.” 4. See press release: Artist Empowerment Coalition (“AEC”) Strikes A Chord For Artists’ Rights in NY Legislature (Oct. 30, A new paradigm in the artist-label relationship will 2002) available at http://www.artistempowerment.com/ be introduced in 2013. Artists who recorded material events.htm. after January 1, 1978 will become eligible to reclaim 5. Cal. Lab. Code § 2855 (2002). their masters. (However, artists who registered their 6. Id. at section 2855(b). recordings between 1972 and 1978 must wait a total of 7. See Donald E. Biederman, et al., Law and Business of the Enter- 56 years, starting from 1972, to be able to reclaim tainment Industries 78 (4th ed. 2001). theirs.)37 Unfortunately, artists who recorded prior to 8. 153 P.2d 983, 986 (Cal. Ct. App. 1944). 1972 are not eligible to reclaim their masters, as no 9. Cal. Lab. Code § 2855(b). sound recording copyright existed prior to that year.38 10. Geffen Records, Inc. v. Henley, No. BC073696 (Cal. Super. Ct. Re-Recording to Obtain Copyright Ownership 1994). 11. We’re Only In It For the Music v. Elektra Entertainment, No. When artists are unsuccessful in securing their orig- 9644007 (Cal. Super. Ct. 1996). inal masters from a label, they may have the option of 12. Geffen Records, Inc. v. Courtney Love, No. BC223364 (Cal. Super. re-recording their original music to obtain copyright of Ct. 2001). the new recording—usually after the commercial peak

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 51 13. See id. 28. Id. 14. See id. at 5. 29. Gail Mitchell, Black Artist Struggle To Regain Ownership of Master Recordings 15. See Courtney Love, Courtney Love Does the Math (June 14, 2000), , 2 Billboard (Mar. 2, 2002). at http://www.salon.com/tech/feature/2000/06/14/love. 30. See Donald Passman, All You Need to Know About the Music 16. See Anthony York, Courtney Love’s Big Sacramento Adventure Business, 200 (2000). (Sept. 6, 2001) available at http://www.businessweek.com/mag- 31. See id. at 203-204. azine/content. 32. See id. See 17. Letter from Confidential Contact, Label GM to Damien G. 33. Mitchell, Black Artist Struggle To Regain Ownership of Master Granderson (Dec. 15, 2002). Recordings, 2 Billboard (Mar. 2, 2002). See id 18. . 34. Id. Impasse In ‘7-Year’ Talks, 19. Melinda Newman, Billboard Bull. (Aug. 35. Id. 9, 2002). 36. Id. 20. See id. 37. Mitchell, Black Artist Struggle To Regain Ownership of Master See id. 21. Recordings, 2 Billboard (Mar. 2, 2002). Id 22. . 38. See id. See Senator Withdraws Bill To Repeal ‘Seven- 23. Melinda Newman, 39. John P. Kellogg, Take Care of Your Music Business 74 (2000) Year Statute,’ Billboard Bull. 1 (Aug. 16, 2002). (providing a sample exclusive recording artist contract). 24. See id. 25. Melinda Newman, Label, Artists Spar over Labor Code, Hollywood Damien G. Granderson is currently a law clerk at Rep., available at http://www.aftra.com/resources. Hiscock & Barclay, LLP and an associate editor of 26. Id. Albany Law Review. He is a candidate for a J.D. 27. Artist Empowerment Coalition (“AEC”) Strikes A Chord For degree at Albany Law School of Union University in Artists’ Rights in NY Legislature (Oct. 30, 2002) available at http://www.artistempowerment.com/events.htm. Spring 2003 and may be contacted at dgranderson@ mail.als.edu.

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52 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 Whose Right Is It Anyway? Captain America Smashes Through to Preserve an Author’s Right to Terminate a Copyright Grant Notwithstanding a Retroactive Work for Hire Agreement By Ross J. Charap and Faith Wu

The year was 1940. The Nazi The district court granted Mar- war machine had overrun much of vel’s motion for summary judg- Europe and the battle for control of ment, but the Second Circuit the skies over Britain had begun. reversed, finding that Simon’s work America was still more than a year for hire status was still an issue of from entry into the war, but most material fact. Specifically, the Sec- Americans despised Hitler as the ond Circuit issued the judicial greatest villain the world had ever equivalent of the poker rule, “the known. Among them was Joe cards call themselves,” that is, that Simon, a young cartoonist who was parties may not agree retroactively carving a niche in the then brand- that a work was made for hire. Such new medium of comic books.1 an agreement may be disavowed as Simon decided to start his own pri- an “agreement to the contrary” for vate war with Hitler by making Der purposes of termination.4 This deci- Führer the villain of a new comic sion is likely to have far-reaching book series, Captain America. effects for all creators of copyright- Simon’s hero, Steve Rogers, was a ed material. It will restrain those buck private who was transformed who exploit copyrighted works and from a skinny weakling into a possess economic leverage from superhero by means of an experi- forcing authors to agree by contract mental serum. As Captain America, that they had created works made he has fought the enemies of our for hire when they had not. nation for over 60 years. Now, the United States Court of Appeals for the Second Circuit has decided Captain POW!—Cap Goes to War America’s latest battle, Marvel Characters, Inc. v. Joseph H. Simon,2 in favor of “Cap’s” creator. Simon was a natural for the comic book business. He had been a professional artist since high school, was a devotee of pulp fiction and science fiction and had Background enjoyed successful stints as a sports cartoonist and Pursuant to the provisions of the 1976 Copyright columnist for the Hearst papers in Rochester and Syra- Act, an author (or his statutorily named heirs) of works, cuse. After he came to New York City in 1939, he soon other than works for hire, may terminate original grants became obsessed with comic books. During the day, he (other than by will) of copyright at the end of 56 years served as an editor for Fox Publications, a leading from the date copyright was originally secured and comic book publisher. In the evening and on weekends, enjoy the fruits of his labor for the so-called extended he and a group of freelancers he hired churned out renewal term.3 In 1999, Simon did just that, terminating story after story. Simon shopped these works to comic his 1940 grant of copyright to Marvel Comics and book publishers through a middleman, Funnies Incor- reclaiming copyright for the extended renewal term. porated. Simon sold many stories through Funnies, Marvel rejected the termination, filed a declaratory including his first big success, Blue Bolt. judgment action and invoked a 30-year old settlement As war raged in Europe, Simon hit upon the idea of agreement resolving litigation over the renewal term in making Adolf Hitler a figure of ridicule by featuring the which Simon acknowledged that he had created Cap- hated dictator and his heinous henchmen as the princi- tain America as an employee for hire. Simon denied pal villains in a new comic book. But who was to pro- that Captain America was a work for hire and sought to tect America from these dastardly evildoers? Inspired disavow the settlement agreement as an ineffective by Hitler’s villainy, Simon created Captain America. “agreement to the contrary” under 17 U.S.C. § 304(c)(5).

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 53 Simon believed that Captain America was a surefire Siegel, one of the creators of Superman, to recapture commercial property. He decided to bypass Funnies copyright in that work for the extended renewal term. and shop his creation himself. The property was turned Simon soon learned that seven years after the settle- down by Fox and others, but Martin Goodman of Time- ment of his renewal war, Congress had revised the ly Comics was so impressed that he agreed to feature copyright law in the Copyright Act of 1976. An impor- Cap in a comic book of his own. Simon orally assigned tant provision of the new Act added 19 years to the his interest to Timely for a per-page fee and a piece of renewal term of copyright10 and permitted authors or the profits, and the first issue was published and copy- their statutory heirs, except in the case of works for hire righted in December 1940 by Timely. It was a tremen- and transfers by will, to terminate the rights of an origi- dous success, with more than a million copies sold.5 nal grantee and its successor-in-interest.11 Simon and his assistants, including the legendary comic Simon was thrilled to have another opportunity to book creator Jack Kirby,6 created the second through reclaim Cap. In December 1999, pursuant to § 304(c), tenth issues of Captain America as freelancers before Simon filed notice with the Copyright Office to termi- Simon (“stiffed” by Timely on the profits) and Kirby left nate his transfer of the copyright in Captain America to to work for DC Comics. Since 1941, Simon has received Marvel and its predecessor, Timely. Marvel’s bellicose but a few thousand dollars for his iconic creation. response was to file suit in the Southern District of New York seeking a declaratory judgment that the termina- BAM!—The Fight for Renewal tion notice was invalid and that it was the sole owner of As the renewal term for Captain America the copyright.12 Simon counterclaimed, seeking a approached, Simon decided to reclaim copyright in his declaratory judgment that he was the sole author of the work. He reasoned that he had merely assigned first work, that the termination notice was valid and that the publication rights to Timely for the first 28-year term copyright in Captain America reverted to him on the under the 1909 Copyright Act and should have been effective date of the termination notice.13 able to recapture the copyright for the 28-year renewal After a year of discovery, Marvel moved for sum- term.7 To that end, Simon commenced a two-front war mary judgment, arguing that under the doctrines of res in separate lawsuits against Martin Goodman and oth- judicata (claim preclusion) and equitable estoppel (issue ers. preclusion), and basic principles of contract law, Simon Simon sought a declaratory judgment that he had could not terminate because he had acknowledged in the sole right to claim the renewal term in Captain the settlement agreement that he was an employee for America in the Southern District of New York. Earlier, hire.14 Simon’s opposition to the summary judgment in a New York state court action, Simon sought an motion was grounded in the statutory declaration that accounting, damages and injunctive relief, claiming that terminations could be effected “notwithstanding any Goodman had misappropriated his state law property agreement to the contrary.”15 Because Simon denied rights. that he had been an employee for hire, he contended that the 1969 settlement agreement was just such an The battle raged for three years. By 1969, Simon, “agreement to the contrary,” which he could disavow short of men and material, was forced to settle. In the for purposes of termination. settlement agreement, promulgated by Marvel, Simon first assigned “any and all right, title and interest he Judge Casey of the district court found that the may have or control or which he has had or controlled plain language of § 304(c) did not permit equitable con- in [the works] (without warranty that he has had or siderations, and that the application of equitable estop- controlled any such right, title or interest) . . . ”8 to pel to this case would contravene Congress’ intent to Goodman. However, Simon was also forced to permit authors a fresh opportunity to benefit from own- acknowledge that all of his work on Captain America ership of their works.16 The court further held that “was done as an employee for hire of the Goodmans.”9 Simon’s claim was not barred by res judicata because the Although this was untrue, Simon saw no harm in 1969 actions could not have resolved the question of agreeing to sign—he was giving up the renewal term whether Simon was entitled to termination rights—a for a cash payment and, at the time, there were no other new and separate right from Simon’s previous claim to rights to assert in his work. The parties ceased fire and the renewal term that did not exist at the time of the filed stipulations of dismissal with prejudice. earlier actions.17 Judge Casey also rejected Marvel’s collateral estoppel argument, noting that the issue of authorship had not been fully and fairly litigated in the WAK!—The Final Battle? prior actions—the parties had filed only bare-boned For 30 years, it was all quiet on the comic front. stipulations of dismissal.18 Yet, having disposed of all of Then, in 1999, while surfing the Internet, Simon, now 86 these arguments, the district court still granted summa- years old, read about the efforts of the heirs of Jerry ry judgment to Marvel. Judge Casey found that, in the

54 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 1969 agreement, Simon had explicitly acknowledged To reach this conclusion, the court engaged in a creating a work for hire and was thus barred from exer- lengthy analysis of the legislative intent and purpose of cising termination rights.19 Oddly, the district court § 304(c), looking first to the language of the statute made no mention whatsoever of the critical “notwith- itself.29 The termination clause provides in pertinent standing any agreement to the contrary” language of § part: 304(c)(5). In the case of any copyright subsisting On appeal, Marvel continued to argue that there in either its first or renewal term on was no difference between the authorship issue raised January 1, 1978, other than a copyright in the previous actions and the termination right Simon in a work made for hire, the exclusive was seeking in this case.20 Simon argued that the dis- or nonexclusive grant of a transfer or trict court was mistaken: The authorship issue had not license of the renewal copyright or any been fully and fairly litigated in the previous actions or right under it, executed before January disposed of by the 1969 settlement agreement and, 1, 1978, by any of the persons designat- therefore, should be sent to a jury for determination.21 ed by subsection (a)(1)(C) of this section, otherwise than by will, is subject The Second Circuit found for Simon on all issues. to termination under the following con- With respect to res judicata, the court found that the ditions: 1969 stipulations and dismissals with prejudice served only as a final judgment on the competing claims to the * * * renewal term, and not the extended renewal term.22 First, (5) Termination of the grant may be the Second Circuit noted that the termination right did effected notwithstanding any agreement to not exist until 1978; therefore, the 1969 judgments could the contrary, including an agreement to not address or extinguish claims that did not exist.23 make a will or to make any future Moreover, the courts in the prior actions could not grant.30 reward the requested relief in the instant action—the right to terminate the grant to Marvel and to recapture Judge McLaughlin noted that, generally speaking, the the copyright in the extended renewal term.24 1969 settlement agreement is an “agreement to the contrary,” but found it necessary to go beyond the text of As for Marvel’s collateral estoppel argument, the the statute to ascertain the statute’s meaning.31 Second Circuit reasoned that “a stipulation of settlement unaccompanied by findings of fact . . . does not The 1909 Copyright Act provided for an initial 28- bind parties on any issue . . . which might arise in con- year term of copyright protection and a 28-year renewal nection with another cause of action.”25 Here the stipu- term, which Congress intended to revert back to the lations did not include any specifics about the author- author, despite a prior grant or assignment of the initial ship issue in the settlement agreement. Thus, the issue copyright term. This legislative attempt to return a of authorship—who actually created Captain America work to its author after the true value of the work had and under what circumstances—was not fully litigated been established by exploitation in the initial term was in the 1969 actions. For these reasons, the court deter- thwarted, however, by the Supreme Court’s decision in mined that Simon was not precluded from claiming Fred Fisher Music Co. v. M. Witmark & Sons.32 In Fisher, that he is the author of Captain America for purposes of which concerned the musical composition, “When Irish exercising his rights under § 304(c).26 Eyes Are Smiling,” the Supreme Court held that an author could contract away his right to the renewal Having concluded that Simon could assert that he term before the right vested at the end of the initial is the author of Captain America in order to exercise his term.33 With that decision, publishers had a blueprint termination right, Judge McLaughlin, speaking for the for circumventing the author’s reversionary right. court, addressed the issue of first impression in this Because of their superior economic bargaining power, case: Whether an agreement in which parties retroac- publishers were able to compel authors routinely to tively agree that a work was made for hire constitutes assign their renewal rights at the same time as they an ineffective “agreement to the contrary,” which may assigned their rights to the initial term. be disavowed for termination purposes. The Second Circuit held that such an agreement was an “agreement Congress and the interest groups who participated to the contrary” under § 304(c)(5).27 Therefore, Simon in the process of copyright revision to enact the 1976 was not bound by the 1969 settlement agreement and Copyright Act were well aware of this historical back- the district court was wrong to rely upon that agree- drop when they negotiated the new termination right. ment in granting summary judgment to Marvel.28 As the Second Circuit noted, the Supreme Court made

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 55 plain the intent and purpose behind the termination As for Simon, he lives on to fight another day so provision of the 1976 Act in Mills Music v. Snyder: that, as one wag put it, “Cap can come home to Dad.” The principal purpose of the amendments in §304 was to provide added Endnotes benefits to authors. The . . . concept of a 1. The first true comic book, Action Comics, featuring Superman, termination right itself, was obviously appeared in mid-1938. intended to make the rewards for the 2. See Marvel Characters, Inc. v. Joseph H. Simon, 310 F.3d 280, 2002 creativity of authors more substantial. U.S. App. LEXIS 23146, 64 U.S.P.Q.2d 1891 (2d Cir. 2002). More particularly, the termination right 3. Termination may be effected within a 5-year window following was expressly intended to relieve the 56th anniversary of the original date of copyright so long as notice of termination of at least 2 years and no more than 10 authors of the consequences of ill- years is given to the original grantee or its successors. advised and unremunerative grants 4. See 17 U.S.C. § 304. that had been made before the author 5. The circumstances surrounding the creation of Captain America had a fair opportunity to appreciate the are set out in detail in Simon’s book, The Comic Book Makers true value of his work product. That (Crestwood 1990). They also inspired the Pulitzer Prize-winning general purpose is plainly defined in novel, The Adventures of Kavalier and Clay, by Michael Chabon. the legislative history and, indeed, is 6. Kirby created the Incredible Hulk, X-Men, Silver Surfer and many fairly inferable from the text of §304 other memorable comic book heroes. itself.34 7. See 17 U.S.C. § 24, repealed by Copyright Act of 1976, 17 U.S.C. §§ 101 et seq. The Second Circuit also acknowledged that Con- 8. See Declaration of Joseph H. Simon, Exhibit 7: Settlement Agreement gress intended to protect authors from unequal bargain- between Joseph H. Simon and Martin and Jean Goodman at 2, Marvel ing positions.35 Therefore, Congress made the termina- Characters, Inc. v. Simon, 2002 U.S. Dist. LEXIS 3260 (2002) (No. tion right inalienable—authors must be able to exercise 00 Civ. 1393). this right “notwithstanding any agreement to the con- 9. See Declaration of Joseph H. Simon, Exhibit 7: Settlement Agreement trary.”36 It follows, the Second Circuit reasoned, that between Joseph H. Simon and Martin and Jean Goodman at 7, Marvel Characters, Inc. v. Simon, 2002 U.S. Dist. LEXIS 3260 (2002) (No. “an agreement made after a work’s creation stipulating 00 Civ. 1393). that the work was created as a work for hire constitutes 10. Congress added 20 additional years to the renewal term in the an ‘agreement to the contrary’ which can be disavowed Sonny Bono Copyright Term Extension Act of 1998, Pub. L. No. 105- pursuant to the statute.”37 Had the Second Circuit ruled 298, 112 Stat. 2827 (1998). Congress also provided for a new ter- otherwise, the legislative intent and purpose of the mination opportunity—if termination has not been effected at statute would have been thwarted and, as was the case the end of 56 years, it may be effected within the 5-year window commencing on the 75th anniversary of the date of the original with Fred Fisher, savvy publishers would have had a copyright with the same notice requirements. blueprint for eliminating the termination right. 11. See 17 U.S.C. §§ 304(b) and 304(c). With this construction of the termination provision, 12. See Marvel Characters, Inc. v. Simon, No. 00 Civ. 1393, 2002 U.S. the Second Circuit held that the 1969 settlement agree- Dist. LEXIS 3260, 2002 WL 313865, 62 U.S.P.Q.2d 1650 (2002). ment was an “agreement to the contrary” and that, 13. See Marvel Characters, Inc., 2002 U.S. Dist. LEXIS 3260, at *2. The therefore, Simon was not bound by the statement in the effective date of termination was December 7, 2001, the 60th anniversary of Pearl Harbor. settlement agreement that he created Captain America See Marvel Characters, Inc. as an employee for hire. The Second Circuit reversed 14. , 2002 U.S. Dist. LEXIS 3260, at *12. and remanded, concluding that it was for a jury to 15. See 17 U.S.C. § 304(c)(5). determine whether Simon was the author of Captain 16. See Marvel Characters, Inc., 2002 U.S. Dist. LEXIS 3260, at *14. America with the right to terminate the grant of copy- 17. See Marvel Characters, Inc., 2002 U.S. Dist. LEXIS 3260, at *20. right to Marvel. 18. See id. It remains to be seen how this decision will impact 19. See Marvel Characters, Inc., 2002 U.S. Dist. LEXIS 3260, at *29. authors and their publishers. One observer, Kay Mur- 20. See 310 F.3d at 286. ray, General Counsel of the Authors’ Guild, an amicus in 21. See id. the Simon case,38 notes that the decision preserves one 22. See 310 F.3d at 287 (referencing Nemaizer v. Baker, 793 F.2d 58, 60- of the few rights accorded to authors under the Copy- 61 (2d Cir. 1986)). right Act: “This has been a hard won acknowledgment 23. See 310 F.3d at 287 (citing Lawlor v. Nat’l Screen Serv. Corp., 349 of the original creator and his ‘inalienable’ termination U.S. 322, 328 (1955)). right, as determined by the Supreme Court.39 If the 24. See id.; see, e.g., Leather v. Eyck, 180 F.3d 420, 425 (2d Cir. 1999); Court of Appeals had not interpreted the [copyright] Burgos v. Hopkins, 14 F.3d 787, 790 (2d Cir. 1994); Davidson v. Capuano, 792 F.2d 275, 278 (2d Cir. 1986). statute correctly, the decision would have adversely affected creators of popular works for years to come.” 25. 310 F.3d at 289 (citing Lawlor, 349 U.S. at 327); see also Motrade v. Rizkozaan, Inc., 1998 U.S. Dist. LEXIS 2864, No. 95 Civ. 6545, 1998

56 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 WL 108013, at *5 (S.D.N.Y. March 11, 1998) (“To have a preclu- 37. 310 F.3d at 290. sive effect on specific issues or facts, however, a voluntary dis- 38. See Memorandum Of Amici Curiae, The Authors Guild, Inc., The missal also must be accompanied by specific findings sufficient American Society of Journalists and Authors, The National Writ- for a subsequent court to conclude that certain matters were ers Union, Novelist Inc., The Science Fiction and Fantasy Writ- actually decided.”). ers Association, The Society of Children’s Book Writers and 26. See 310 F.3d at 288. The Appellate Court agreed with the district Illustrators and the Text and Academic Authors Association In court’s analysis and application of Yoon v. Fordham Univ. Faculty Support of Defendant Joseph H. Simon (“Memorandum of & Admin. Retirement Plan, 263 F.3d 196, 202 (2d Cir. 2001), to the Amici Curiae”) at 9, Marvel Characters, Inc. v. Simon, 2002 U.S. case at hand. Plaintiff Yoon had previously litigated and default- Dist. LEXIS 3260 (2002) (No. 00 Civ. 1393). ed on his state court claim that he was entitled to his teaching 39. See New York Times Co. v. Tasini, 533 U.S. 483, 496 n.3, 497 (2001); salary. Thereafter, Yoon filed a suit in federal court claiming see also Stewart v. Abend, 495 U.S. 207, 230 (1990). entitlement to pension benefits under ERISA. The Second Cir- cuit found that Yoon could raise the question of salary in order to establish the contractual basis to his pension entitlements. Ross J. Charap is a partner at Moses & Singer and Here, Simon can raise this issue of authorship to claim his ter- was co-counsel for Simon in his suit against Marvel mination right; Simon, however, is precluded from claiming any benefits from the initial and renewal terms. Comics. Mr. Charap’s practice includes the representa- 27. See 310 F.3d at 292. tion of composers and publishers of music, recording companies, software developers, writer, and visual 28. See id. artists on varied intellectual property issues. He repre- 29. See 310 F.3d 280, 290-91 finding support in Nimmer on Copy- sents the American Society of Composers, Authors right: and Publishers (ASCAP) where he spent 25 years as The parties to a grant may not agree that a work shall be deemed one made “for hire” in order to in-house counsel, eventually becoming the Vice Presi- avoid the termination provisions if a “for hire” dent of Legal Affairs. He also represents The Harry relationship . . . does not in fact exist between Fox Agency, Inc., the licensing arm of the National them. Such an avoidance device would be con- Music Publishers’ Association, Inc. Mr. Charap is an trary to the statutory provision that “termination of the grant may be effected notwithstanding any expert on terminations for copyright. He has also agreement to the contrary.” . . . It is the relation- negotiated and drafted many important copyright ship that in fact exists between the parties, and not licensing agreements with satellite and cable televi- their description of that relationship, that is deter- sion networks, broadcasters, international corpora- minative. tions, professional sports teams, the Atlanta Olympic 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright Organizing Committee and concert promoters. § 11.02[A][2] (2000 ed.) (footnote omitted). 30. 17 U.S.C. §§ 304(c) and 304(c)(5) (emphasis added). Faith Wu is an associate at Moses & Singer. Ms. 31. See 310 F.3d at 290. Wu’s practice focuses on intellectual property law, 32. Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643 (1943). entertainment and corporate transactions. She has 33. See 318 U.S. at 657-59. broad experience counseling and representing media, Internet and Fortune 500 companies in areas including 34. Mills Music v. Snyder, 469 U.S. 153, 172-73 (1985) (footnote omitted). mergers and acquisitions, licensing arrangements, co- 35. See H.R. Rep. No. 94-1476, at 124 (1976), reprinted in 1976 branding, intellectual property audits, technology, U.S.C.C.A.N. 5659, 5740 (“A provision of this sort is needed computer software, e-commerce, trademark prosecu- because of the unequal bargaining position of authors, resulting tion and patent, trademark and copyright litigation. in part from the impossibility of determining a work’s value She also represents not-for-profit organizations, art until it has been exploited.”); see also Mills Music v. Snyder, 469 U.S. 153, 173 n.39 (1985). collectors, creative talent and entrepreneurs. Ms. Wu is a certified mediator and speaks French, Taiwanese 36. See 310 F.3d at 290; accord Stewart v. Abend, 495 U.S. 207, 230 (1990) (stating “The 1976 Copyright Act provides . . . an inalien- and Chinese. able termination right.”).

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NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 57 “Harry Potter and the Order of the Court” Pennsylvania Woman Sanctioned for Bringing Bad Faith Infringement Claims By Jessie Beeber and Edward Rosenthal

In a recently reported decision, Judge Allen G. Schwartz in no way infringed any of Stouffer’s rights. Stouffer of the United States District Court for the Southern District counterclaimed, asserting among other things violations of New York granted summary judgment in favor of the of her copyrights and common law trademark rights. author, publisher and licensee of the famous Harry Potter A full-scale litigation ensued (in which Stouffer was books, against claims of trademark and copyright infringe- represented by counsel), with a few things quickly ment brought by an unknown author, Nancy Stouffer. He becoming apparent. First, it became clear that Stouffer’s also concluded that Stouffer had submitted altered or fabricat- works were self-published story, coloring and activity ed evidence to the court in support of her claims, and assessed booklets, which, at most, had some limited distribution $50,000 in sanctions, plus attorneys’ fees and costs, against in the Harrisburg, Pennsylvania area in the 1980s. More Stouffer. Stouffer is currently appealing the decision to the importantly, there was absolutely no overlap or possi- Second Circuit. bility of confusion between Stouffer’s characters and It was the fall of 1999 and the popularity of a fic- Rowling’s. For instance, Stouffer’s “Muggles,” as tional boy wizard named Harry Potter was reaching a depicted in her booklets, were tiny, post-apocalyptic, fever pitch in the United States. Author J.K. Rowling’s hairless creatures with bulbous eyes and potbellies, Harry Potter and the Chamber of Secrets, the second while Rowling’s “Muggles” were ordinary humans. installment in the series, had just been published in the Stouffer claimed that she had a character named “Larry U.S. by Scholastic Inc., and was topping the bestseller’s Potter.” This alleged character purportedly appeared in list. Fans were eagerly awaiting Harry Potter and the a totally different booklet from the “Muggles,” and was Prisoner of Azkaban, the third installment in the series, a boy who was sad because he had to wear eyeglasses. which was just about to be released. The first book, “Larry” had brown or orange hair and glasses with Harry Potter and the Sorcerer’s Stone was also a major non-circular lenses and speckled brown frames, while bestseller, and plans for a feature motion picture were Harry Potter was a young orphan boy with black hair, a in the works. lightning bolt scar on his forehead, and distinctive eyeglasses with black frames and circular lenses. While By that time, practically any school-age child could “Larry” purportedly appeared in one 11-page booklet, recite by heart the particulars of Harry Potter’s story— Harry was the central figure of a series of books, each how his wizard parents, James and Lily Potter, were several hundred pages in length, each detailing his fab- killed by the evil wizard Voldemort shortly after ulous adventures.1 Harry’s birth; how Harry survived the attack unscathed except for a signature lightning bolt scar on his fore- On summary judgment, the court ultimately con- head; how Harry was raised by “Muggles” (which is cluded that “the similarities between Stouffer’s books what wizards call ordinary humans without magical and the Harry Potter series are minimal and superficial, powers) until his eleventh birthday, when he was invit- and even when considered altogether they could not ed to attend a wizard boarding school, the Hogwarts give rise to a likelihood of confusion . . .”2 Second, the School of Witchcraft and Wizardry. lawyers began to question the authenticity of the evidence Stouffer had submitted to them and the court as Enter Nancy Stouffer, an unknown author from documentation of her creation and use of her charac- rural Pennsylvania, with an amazing claim—that Rowl- ters. After examining Stouffer’s evidence, and tracking ing had copied key elements of her stories, including down the printers, illustrators, salespeople and retail the names Muggles and Harry Potter—from Stouffer’s outlets that were allegedly involved in the creation and own books. Not only did Stouffer contact Scholastic sale of her works, they found discrepancies that Stouf- about her claims, she shopped her books around New fer could not explain, ultimately leading them to make York City, hoping to pique a publisher’s interest by a motion for sanctions. claiming that J.K. Rowling and Scholastic were infringing her rights. In response, Scholastic, Rowling and For example, in support of her trademark infringe- Time Warner Entertainment Co., L.P. (the licensee of ment claims, Stouffer produced a copy of an advertise- Rowling’s movie and merchandising rights) filed a ment that allegedly had appeared in Playthings, a toy declaratory judgment action in the Southern District of industry magazine, in the 1980s. The advertisement, as New York, seeking an order that the Harry Potter books submitted to the court, contained the phrase “Mug-

58 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 gles™ from RAH™” thus allegedly bolstering Stouffer’s In addition, the court awarded the Harry Potter claim that she had used “Muggles” as a trademark parties statutory attorneys’ fees and costs incurred in before the publication of the Harry Potter books. The defending Stouffer’s trademark claims. It determined lawyers, however, visited the Playthings office, exam- that this was an “exceptional case” under the Lanham ined the actual advertisement as it ran, and discovered Act, finding that Stouffer had “asserted claims and that it did not have the “Muggles™ from RAH™” leg- defenses without any reasonable basis in fact or law end on it. The court concluded that even if Stouffer her- and . . . attempted to support such claims and defenses self had not altered the advertisement, it was incum- with items of evidence that have been created or altered bent upon her to determine whether it was authentic for purposes of this litigation.”7 before submitting it to the court, and representing that This particular Harry Potter story has several it was an advertisement that actually ran.3 important lessons. First, lawyers defending against It was determined, with the aid of a forensic docu- what appear to be spurious claims of copyright and ment expert, that several booklets produced by Stouffer trademark infringement are well advised to view the that bore the title “The Legend of RAH and the Mug- claimant’s evidence skeptically. Moreover, tools are gles” had been altered after their original printing, such available, albeit at a cost, to analyze documents and that their titles were changed from “RAH” to “The Leg- other physical evidence. Amazing things can be learned end of RAH and the Muggles” sometime in the 1990s. from analysis of paper stock, glue, printing techniques, The court found that by attaching the altered booklets ink and other numerous elements of a physical object. as exhibits to her counterclaims, and representing that Finally, courts are willing, when presented with suffi- they were created, marketed and sold in the 1980s, cient evidence, to hold litigants personally responsible Stouffer had committed a fraud on the court.4 for the claims they make and the evidence they submit in court, and will impose serious sanctions for fraud Stouffer’s inability to produce a copy of her “Larry and bad faith conduct. Potter” booklet she claimed to have published in the 1980s was also troubling. She did produce a “printer’s proof” as well as two color photocopies, but the foren- Endnotes sic expert was able to determine that none of those doc- 1. Stouffer’s other claims of similarity and the rejection of each are uments could have been printed prior to 1993. Stouffer discussed at length in the court’s written opinion in Scholastic could not explain that discrepancy, and the court found Inc. v. Stouffer, 221 F. Supp. 2d 425, 434-37 (S.D.N.Y. 2002). that even if the original booklet was created in the early 2. Scholastic, 221 F. Supp. 2d at 437. 1990s, then its title page—which contained a copyright 3. Scholastic, 221 F. Supp. 2d at 440. date of 1988—was patently false, and Stouffer’s know- 4. These are but 3 examples of evidence submitted by Stouffer that ing submission of photocopies containing such a mis- the court found was created or altered. For a complete discus- representation constituted a fraud on the court. sion of the court’s findings see Scholastic, 221 F. Supp. 2d at 439- 46 and Scholastic Inc. v. Stouffer, 2002 U.S. Dist. LEXIS 21294 The court found, by clear and convincing evidence, (Nov. 1, 2002) (denying Stouffer’s motion for reconsideration). that Stouffer “had perpetrated a fraud on the court 5. Scholastic, 221 F. Supp. 2d at 444. through her submission of fraudulent documents as 6. Id. well as through her untruthful testimony.”5 In assessing 7. Id. a monetary sanction against her for $50,000, it found that Stouffer had “engaged in a pattern of intentional Jessie Beeber and Edward Rosenthal are partners bad faith conduct and failed to correct her fraudulent at Frankfurt Kurnit Klein & Selz, P.C. They represent- submissions, even when confronted with evidence ed author J.K. Rowling and her U.S. publisher undermining the validity of those submissions,” and Scholastic Inc. in this litigation. O’Melveny & Myers that her “calculated generation of fraudulent docu- lawyers Dale Cendali, Claudia Ray, Jennifer Choe and ments and testimony undoubtedly imposed burdens on Johanna Schmitt served as co-counsel for Time Warn- [the Harry Potter parties] by increasing the legal fees er Entertainment Co., L.P. and expenses incurred . . . in the investigation and defense of her counterclaims.”6

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 59 Star Struck—What to Do When “It” Hits the Fan for Your Celebrity Client By Lisa M. Fantino

“Kiddie Porn in Who-ville” order and then, individually, which parts of each story were covered and which parts were omitted. “‘Sticky Fingers’ Rider Convicted” Question whether the story is “sexy”: Does it “Driver Dunked in Shootout at Hoop involve a celebrity or public official; is it a crime of pas- Star’s Home” sion; is there a gory crime scene; is there a scandal We have all seen the headlines, from civil actions to involved? If the story’s “glam” quotient is low, then see criminal prosecutions. Stars are not exonerated by if it reaches a high number of people because anything virtue of their celebrity, and in fact when trouble hits that affects the community at large is newsworthy. Real- the fan for them, the whole world knows about it in a ize, too, that each media outlet has an agenda and mis- very short time. The difficulty for the celebrity’s lawyer sion of its own, and it will be easier to determine is not just the litigation at hand, but the posse of han- whether the liberal or conservative outlet will be more dlers that walk in the shadow of the spotlight, often rid- inclined to cover the story. ing the star’s coattails for his or her 15 minutes of fame. The days of “no comment” and “off the record” are When It Hits the Fan—Who Should Speak? long gone. Nearly everything that happens in the world When the story’s “glam” quotient is high, however, of entertainment is newsworthy outside the courthouse, timing a pitch is not crucial to gaining coverage. Star but the art is in knowing whether it is going to play out clients create a wake of press with almost every move. in a community newsletter or on the nightly network If the timing is right, such as a slow news day, a week- news. Part of your job as a celebrity lawyer is to make end bust or crashing into a politician’s car, even an sure that you dish the meal you want the media to feed upcoming star can generate significant publicity with upon, because with or without your cooperation, the just a DUI arrest. The possibilities are endless. beast must be fed. The attorney for these clients is often the last one to know about the trouble, sometimes learning of the When Is a Case/Story Newsworthy? event long after the media has gotten wind of it. While “It’s news because it’s new,” says David Book- most of us need some sleep, the media operates 24/7. staver, Director of Communications for the New York Newspapers have longer lead time than do radio and State Office of Court Administration. “You have to ask television stations. The deadline for a print reporter is yourself, what is the new angle and what is the public several hours ahead of when a reader may see the interest?” Bookstaver himself knows the art of chasing newspaper, whereas the deadline may come down to news, as a former photojournalist for both The Associat- minutes for radio and television reporters, making them ed Press and the New York Post, but he readily admits much more accessible for breaking news. that there is no exact science to determining what may So, what’s an attorney to do when awakened at 3 or may not hold interest for the gatekeepers of public a.m. by an artist’s manager, a client, or even a reporter? information. (Yes, they will call regardless of times zones. Take it Lawyers need to realize how much power the from someone who tracked down the President of media holds, for it is the reporters, editors and produc- Egypt Air at home, across eight time zones and at least ers who determine just what type and amount of infor- two continents, shortly following the pre-dawn week- mation gets out to the public. Therefore, it is important end crash of a Boeing 767.) for attorneys to begin studying how the media thinks. “As the attorney, you must take control of the case That requires becoming an active radio listener and tel- immediately,” says noted criminal defense attorney Mel evision viewer, as well as learning to read the newspa- Sachs. “You have to be the captain of the ship, even per in a different way. It is important to take an active though the ship is owned by your client. When you role in assessing which stories were covered and why accept a case, you also accept responsibility for any- they were covered on any particular day. The first step thing stated to the media; therefore, you as the attorney should be to read the five main headline stories in should be the only spokesperson on behalf of your depth, analyze why the stories were placed in that client.”

60 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 As an attorney with an entertainment clientele, I et Papa, veteran broadcast journalist for WINS-AM in have issued directives on more than one occasion to my New York and formerly of WCBS-TV. “I don’t know clients that all media queries or statements made on that they do any good and often take on more of pre- behalf of the client are to come through my office. ventive than informative role.” While the attorney can suggest and advise what should It is best if you, as the attorney representing some- be done, it is the client’s responsibility to then direct his one whose case has media attention, speak directly to or her managers, agents, publicists and assorted other the media on behalf of your client. If your office is handlers to refrain from making any public statements screening all media queries, then you can make sure on his or her behalf or from giving any information “on that your client never speaks to the media outside of background” with regard to a client’s legal issues. The your presence. attorney may often find that this sits easier with the clients than with their posses, but it is part of the role as If, however, you do allow your clients to speak to an advocate. the media, you must carefully monitor what they are saying. If the matter involves litigation, anything the Sachs, whose clients have ranged from magician clients say may be used against them as a prior state- David Copperfield and music impresario Russell Sim- ment, if it is inconsistent with other testimony. You can mons to model Beverly Johnson and the New York Yan- best prepare your clients by preparing yourself to speak kees, says that it is part of the attorney’s role to safe- in simple sentences without revealing too much infor- guard a client’s rights, by organizing and supervising mation that may be harmful. everyone even tangentially involved in the client’s career when a legal issue is involved. Yeoman efforts “You never have to answer a reporter’s questions must be made to manage and balance all of the egos. the way you must answer an appellate judge’s questions directly,” Sachs advises. “When the media is ask- “I have encountered situations where even well- ing the questions, you give the answers that you want, meaning representatives of celebrities do not realize the because what’s ultimately used in the nightly news is consequences of their actions in a legal case. Many of what you say.” the representatives seem to be wearing blinders like the horses that go around Central Park.” Giving Reporters What They Want! Unfortunately, many entertainment lawyers do not take the time to strategize with all of the representatives Once a story breaks, the challenge becomes protect- involved, which can lead to confusion, misinformation ing the celebrity while satisfying the media. Many attor- and plain old bad press. Veteran music publicist Mitch neys and most publicists often think this can be Schneider has been the spinmaster for artists including achieved through a well-crafted press release. What the Janet Jackson, David Bowie, Staind and Alanis Moris- reporters really want is an articulate, educated sette, but he says that it is a rare occasion when he is spokesperson or an emotionally charged client. Either asked to take part in a conference with management will sell stories and win an audience. and lawyers as to how best to respond to media As for press releases, the mailed ones are old news queries. More often than not, he is given a script on by the time they reach the editors and producers and what he can and cannot say with regard to a mega-mil- the sheer number of faxed releases that come through a lions deal or a litigation matter. newsroom each day makes it impossible for the gate- “The attorneys don’t traffic every day in the world keepers to sift through and discover what may be of publicity so a proposed statement might look nice on usable. This job is often left to interns or young desk paper, but the publicist might realize that people will assistants who have yet to perfect their instincts for see holes in it and it’s not the best response,” says good stories and the press releases generally wind up in Schneider. “People need to operate as a team represent- the trash. ing the artist, especially in a crisis situation. It sounds Schneider, whose experience as a rock journalist so ridiculously pedantic, but it’s not always done.” aids him daily in his work as one of the industry’s lead- Lawyers are often inaccessible, whether for ethical, ing publicists, says he would never put out a release on scheduling, or comfort-zone reasons, and feel com- an artist’s arrest, but may issue a statement if the pelled to hire their own outside publicists. Reporters, tabloids are rife with misinformation. “I think at some on the other hand, want the story directly from the point you have to recognize that if there are rumors that source and not a middleman. “I find that the flak isn’t are just patently untrue, it’s better to address them and even that well-informed and sometimes they’re not do some damage control,” he suggests. “It can be a sim- even able to answer legal types of questions,” says Juli- ple response, stating the misinformation is totally untrue and stay tuned for more information.” One of

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 61 the worst things, however, is to deny the truthfulness of What an Attorney Should and Should Not Say an accurate but bad report. While attorneys do not check their free speech When A.J. of the Backstreet Boys had to enter rehab rights at the courthouse door, they are held to a higher for alcoholism amidst the group’s world tour, Schneider standard under the First Amendment. Since lawyers advised the group’s team to issue a simple statement have special access to information through discovery just declaring the truth. “I figure when the artist gets and client communications, the U.S. Supreme Court has out of rehab, the artist is going to talk about it anyway held that attorneys who represent clients in pending because it’s part of the healing process and secondly, cases may be regulated under a less demanding stan- the tabloids are going to get to it first anyway,” he says. dard than that established for regulation of the press.3 “The release just acknowledged A.J’s drinking problem The Court held that lawyers’ extrajudicial statements and indicated he had the group’s support and thanked may pose a threat to the fairness of a pending proceed- the fans for their concern and support.” ing, as such statements are likely to be received as especially authoritative; thus, the First Amendment does not The “team” behind the group took a proactive require a state to demonstrate a clear and present dan- stand to garner major media attention, having the ger of actual prejudice or an imminent threat to fair trial group interviewed on the “Today” show and MTV before any discipline may be imposed on a lawyer who (because so many of the Boys’ fans are young). They initiates a pretrial press conference.4 However, any limi- wanted to disseminate the truth as quickly as possible. tations placed on an attorney by a court may be no In doing so, the team’s well-orchestrated response beat greater than necessary to protect the integrity of the the tabloids at their own game. judicial system and the defendant’s right to a fair trial.5 It is also important to note that while an attorney’s Today’s celebrity attorneys often feel compelled to right to free speech is protected under the First Amend- speak to the media because of extensive pre-trial public- ment, it is advisable to consult the client before reaching ity against their clients. “You have prosecutorial offices out to the media. “You shouldn’t be sending out press in criminal cases, who are letting the public know about releases unless the client has agreed that this is a matter indictments and since that has become de rigueur for the that you can seek press attention on,” says Randolph other side, public opinion begins forming very quickly,” Scott-McLaughlin, a civil rights attorney and Pace Law says Mel Sachs. School professor. Additionally, when a celebrity is arrested the story Scott-McLaughlin has represented many high pro- takes on a new direction, moving from the entertain- file cases and clients, including actor Danny Glover in ment and tabloid press to the mainstream, general the media-worthy case of alleged taxi discrimination in media. Soon, even old first-grade classmates are coming New York City, but he notes that there is a fine line out of the woodwork making statements on the celebri- between being an advocate and the client’s right to pri- ty’s troubled past. Having an advance crisis plan in vacy. “However, once you enter a public forum, the pri- place will help defray the energy spent on spin control vacy rights are limited because the papers are in a pub- trying to shape the media’s views. lic courthouse and the reporters can pick them up themselves. So, if the case is going to get attention any- The Lawyer’s Code of Professional Responsibility, way, it’s better for you to help shape public opinion as adopted by the New York State Bar Association, does than to let a reporter do it.” make it clear, however, that a lawyer should not compensate or give anything of value to representatives of Yet presenting certain information to the media the press, radio, television or other communication may pose ethical issues for attorneys, and leave them medium in anticipation of or in return for professional facing contempt charges. The local rules for the South- publicity in a news item.6 This author doubts, however, ern and Eastern Districts of the U.S. District Court in whether buying a reporter a latté falls under the rubric New York expressly prohibit any statements or release of this disciplinary rule, but it would be advisable to of non-public information that may involve a substan- refrain from offering reporters a trip on your client’s or tial likelihood that their public dissemination will inter- firm’s jet for a vacation in Antigua just to get a head- fere with a fair trial or otherwise prejudice the due line. administration of justice, including statements on the existence or contents of any confession or the performance of any examinations or tests or the accused’s Time to Bring in the Big Guns! refusal or failure to submit to any examination or test.1 As an entertainment lawyer, your involvement with In fact, it is comments on such evidence that have the media is not any more or less than a criminal found attorneys facing the suspension of their licenses defense attorney, but it would behoove you to work on as well as probation.2

62 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 your chops if you are not comfortable being on camera. Endnotes After all, you are advocating for people who are gener- 1. U.S. Dist. Ct. Rules S. & E.D.N.Y., Criminal Rule 23.1(a) & (d). ally well adapted at “being on” all the time. As a vocal 2. United States v. Cutler, 58 F.3d 825 (2d Cir. 1995) (Defendant held in member of your client’s team, knowing what to wear, contempt for speaking repeatedly and heatedly to the media on the what to say and how to say it is not an instinct but a merits of the government’s case against his client.). well-honed skill. In short, the media wants you to 3. Gentile v. State Bar of Nevada, 501 U.S. 1030, 111 S.Ct. 2720, 115 L.Ed. speak, and not your flak; therefore it would be advis- 2d 888 (1991). able to work with a coach on improving your game 4. Id. face. Journeyed reporters, just as lawyers, are quite tal- 5. United States v. Salameh, 992 F.2d 445 (2d Cir. 1993). ented at asking pointed questions and it is up to you to 6. The Lawyer’s Code of Professional Responsibility, as adopted by the deliver informative responses that satisfy their hunger New York State Bar Association, effective Jan. 1, 1970; as amended for the memorable sound bite as something more enter- June 30, 1999, DR2-101 [§ 1200.6] J. taining and understandable than legalese. Lisa M. Fantino is an entertainment and estates Conclusion lawyer and award-winning journalist with an office in Mamaroneck, New York. She has won multiple awards Attorneys need to realize the power in the media for her work at stations including WCBS-AM, WINS-AM and then recognize they hold just as much power in and the NBC Radio Networks, and was the former host of advocating for their clients through the public forum as the celebrity interview show, “Face to Face with Lisa Fan- they do in the courtroom. By keeping it short and sim- tino.” She is the Founder and Executive Producer of Juris ple and avoiding comments as to a client’s guilt or Media Strategies, a firm concentrating in media coaching innocence or the particulars of a record-breaking deal, for attorneys and crisis event management, which can be an attorney can steer clear of the manholes that may found on the web at http://www.JurisMediaStrategies lead one to contempt charges or grievance procedures. .com. A graduate of Pace University and Syracuse Univer- Finally, responding to media queries in a thoughtful, sity, she received her J.D. from the Pace University School respectful manner rather than reacting in a highly of Law. charged, emotional way, will ensure that the needs of both sides will still be served.

MARK YOUR CALENDAR!!! “WOMEN ON THE MOVE” This is a special invitation to request your presence at the first annual symposium for women in the legal profession—“Women on the Move.” Come and learn from remarkable women who have “walked the walk” in law firm management, marketing, and business! Southgate Hotel, New York City May 22, 2003 • 1:00 pm to 5:00 pm Special Feature! Networking Reception • 5:00 pm to 7:00 pm Substantial Hors d’oeuvres Served More information will soon be available online at http://www.nysba.org/cle. You may register on line or by calling 1 800 582 2452. Watch for the brochure that will soon follow with detailed information!

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 63 Lawyer Assistance Program Can Help Attorneys with Alcoholism and Substance Abuse Problems

Alcoholism and substance abuse are problems that depression and stress-related issues through abuse can afflict any member of the bar at any time. Indeed, interventions and planning, sobriety monitoring for the percentage of lawyers and judges suffering from appellate courts and disciplinary committees and par- alcoholism and drug addiction is significantly greater ticipation in treatment programs and twelve step than the general population. Due to the pervasiveness groups with attorneys on a local level; and 2) to educate of the problem in the profession and the devastation the profession as a whole to detect the warning signs by suffered not only by the alcoholic or addict but also by participating in presentations at law schools, judiciary his or her family members, partners and clients, in 1978 conferences, disciplinary committees and bar associa- the NYSBA formed the Committee on Lawyer Alco- tion committees on a statewide and local basis. holism and Drug Addiction. To help the Committee One year ago, Chief Justice Judith S. Kaye formed address the problem, the Lawyer Assistance Program the Lawyer Assistance Trust to study the problems of (LAP), headed by Ray Lopez, was created in 1990. alcoholism and substance abuse in the legal profession, Under Ray’s direction, the program is on the cutting and to provide assistance to groups addressing these edge of alcoholism and drug addiction education, inter- problems. Eight of the Committee’s 68 members serve vention and treatment and is nationally respected as as Trustees. one of the leading programs in the field. Despite the great success of the program (over 5,000 referrals in 12 Information is available to all NYSBA Sections and years) there are thousands of lawyers and judges who Committees about outreach concerning attorneys’ per- do not know about the program and what it can do for sonal problems with alcohol and drug abuse and possi- them. Recently, Patricia K. Bucklin, Executive Director ble grants for efforts related to attorney wellness, in the of the NYSBA, asked all Section and Committee Chairs areas of substance abuse, stress management and to tell their members about the Committee and what it depression. Committee members would welcome the can do for their members who are struggling with alco- opportunity to speak at Committee or Section events hol or substance abuse problems. regarding stress management issues, substance abuse, alcoholism and depression among attorneys. Currently there are 68 Committee members and a vast network of volunteers. Most are attorneys and All services provided by the LAP or Committee judges of the Supreme Court, County Court, Family members are confidential and protected by Section 499 Court and Civil Court. The Committee is aided by proof the Judiciary Law. fessional counselors (like Ray Lopez in Albany and Eileen Travis in New York City) and many others serv- For more information about the Committee, to ing local bar associations. arrange for a presentation or for a confidential referral of an attorney who you believe has a problem with The primary functions of the Committee, with Ray alcohol, substance abuse, stress management or depres- Lopez’s guidance and direction, are twofold: 1) To assist sion, contact the Lawyer Assistance Program at 1-800- attorneys, judges and law school students and their 255-0569. families who are suffering from alcoholism, drug abuse,

Lawyer Assistance Program: 1-800-255-0569

64 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 The Need for Paranoia in Drafting Entertainment Contracts By Michael L. Baroni

Background exploitation of artistic content, and the grantor then Throughout law school, I interned at a small enter- argues that the new technology was never part of the tainment law firm. The partners would often give me deal. contracts to review concerning music recording, talent management, book publishing and film production. I Greenfield v. Philles would come across seemingly simple terms like “album,” A recent case, Greenfield v. Philles Records,2 illustrates “merchandise,” “out of print,” “television” and “profits.” the importance of paranoia in drafting entertainment con- These terms seemed so easy to define; it seemed that tracts. The case held that a conveyance of full copyright everyone, even non-lawyers, had an immediate sense of ownership in music recordings includes uses in media what these words meant. Yet the more I tried to pin down not yet invented or even contemplated when the contract their definitions, the more they seemed to diffuse into a was executed. The defendant was able to prevail because mist of uncertainty. the contract language was extra explicit regarding the “all For example, does the term music “album” refer to a rights” conveyance, stating that the plaintiff had all rights vinyl record, audio-tape, cassettes, CDs, or all of the to exploit the music, including through “any method now above? Does it include music conveyance devices that are or hereafter known.” not yet invented? Start thinking like that, and more amor- In 1963, a music group known as The Ronettes phous words and phrases like “multimedia,” “electronic (plaintiffs) signed a contract that conveyed all rights to rights” and “net profits” can quickly become a morass of the group’s master recordings to Philles Records (defen- ambiguity. dants). A few years later, the plaintiffs’ group disbanded I was deeply troubled by this conundrum. I knew and the defendant record company went out of business. that the meaning of a contract could fluctuate wildly Twenty years later, however, the defendants started mak- depending on the words one chooses, including how ing a substantial amount of money off the recordings by those words are strung together, the context of each word licensing uses for television and film and for granting in relation to the words around it, and the exact grammar uses on compilation records.3 The plaintiffs filed suit, that strings them all together.1 One misplaced comma, for alleging that the contract never conveyed (or even con- instance, can result in an adjective modifying a certain templated) those specific uses. noun, or not—thus drastically altering the plain-English The New York Supreme Court—regardless of the “all meaning of the contract. That is quite a bit of responsibili- rights” conveyance clauses in the contract—granted the ty for those of us who are drafting contracts that will plaintiffs $3 million in breach of contract damages, which affect other people’s lives. was affirmed by the Appellate Division. These courts rea- I was comforted, however, when the partners at the soned that although the contract conveyed all rights, it firm told me that my “skepticism” and linguistic “para- did not “specifically” mention redistribution or licensing noia” would make me a good lawyer. Too many people, for television or film; therefore, the courts held, the defen- they said, take words at face value without rigorously dants did not have those specific rights. (This line of rea- questioning their meaning or without adequately defin- soning would effectively invalidate simple “all rights” ing their parameters in the contract; the result is a dispute conveyance clauses, because one would be required to list down the road regarding the exact meaning of a given every single right being conveyed, or else potentially lose word, phrase, or section in a contract. claim to any right not being “specifically” listed.) One phrase they hammered into my brain, which I The Court of Appeals (thankfully, for anyone respon- will never forget, is “whether now known or hereafter sible for drafting contracts) did not agree with the prior devised.” Whenever I drafted a contract which conveyed courts’ reasoning. It stated that the plain language of the all rights to a given artistic work, I was taught to always contract was unambiguous: It conveyed all rights for any include that phrase, as such: “Artist hereby conveys any and all uses of the music recordings through any method and all rights in and to the Work, for use in any and all or means whether then known or thereafter devised. It media whether now known or hereafter devised.” This is an was irrelevant that the contract did not “specifically” list essential concept, because “all rights” conveyance con- every conceivable right that was being conveyed, since tracts are frequently disputed or litigated over when a the words “now or hereafter known” encapsulated any lucrative new technology enters the arena for the and all future methods of exploiting the music.4

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 65 As the Court noted, it is a long-held common law On the flip side, if an artist wishes to reserve certain principle that, with an unconditional conveyance of all rights, it is advisable to specifically and unambiguously rights, a reservation of rights must be explicitly stated5 list each right being reserved.10 For example: “Artist con- (although this is the exact opposite of what the lower veys all electronic rights to Buyer, except that ‘electronic courts held—that the rights being obtained had to be rights’ shall not include the Internet or digital audio-cas- explicitly stated). In the absence of a reservation of rights, settes.” a grant of all rights will control, and where a contract is If the rights being conveyed are limited, such as print unambiguous6 on its face, the Court said that it would copies of a book, then the contract should clearly state not consider extrinsic evidence of the parties’ contractual that it is the “only” right being conveyed: “Author here- intent.7 The contract stands on its own and speaks for by licenses the limited right to make and distribute print itself.8 copies only of the Work.” It is important to make sure The Court of Appeals did remand the case for an that the “only” is positioned correctly in the sentence so assessment of damages, but not because the plaintiffs had that it modifies the desired term(s) and not some other exercised rights they did not have. Rather, the damages word or phrase. resulted from the fact that the defendants never made royalty payments that were due pursuant to the terms of Entertainment Contract Danger Zones the contract. There are a few primary drafting danger zones shared by most entertainment contracts. These are the Lessons from Greenfield areas over which the drafter/negotiator should have the Greenfield highlights just how treacherous entertain- utmost paranoia in making sure that the contract lan- ment contract drafting can be. Even where the plain-Eng- guage reflects the intent and that it protects the client’s lish reading of the contract clearly conveys all rights and interest as tightly as possible. clearly covers all uses whether now known or hereafter Territory: An entertainment contract should always devised, disputes can still erupt when new methods of specify the territory in which the relevant entertainment exploiting the work enter the equation—sometimes product can be exploited. It should never be assumed decades later. Greenfield should thus inject us all with a that the territory is the United States; a contract which healthy dose of drafting paranoia. does not state a territory is likely to be interpreted as hav- When it comes to contracts, laymen often accuse the ing a “worldwide” territory. If the intended territory is legal establishment of stating the obvious, being redun- limited to the U.S., does that include areas such as U.S. dant, committing linguistic overkill, or being ludicrously overseas military bases, or is it confined to the “continen- rife with “legalese” instead of writing in simple, plain tal U.S.” (thus wiping out Hawaii and Alaska)? English. Yet the more informed lawyer knows that one Term: The term of a contract, and any renewal there- can almost never be too careful, however ridiculously of, should always be crystal-clear. The basic term should overstated the drafting might appear. As Greenfield be definitively expressed, such as “five (5) years,” or thir- proves, simply stating that the artist conveys “all rights” ty-six (36) months”—but that is not enough. Any contin- to the work is never enough to adequately protect a gencies which affect that term, such as when the term client’s interests; one has to also add that the conveyance starts, options for renewal, or rights to terminate, must be covers uses in all media whether “now known or here- ironed out and planned for in advance. after devised,” or some such words to that effect. Payments: Payment issues in entertainment contracts It follows, therefore, that where a contract grants less can be incredibly complex, but a lawyer should always than full ownership, or specifies only certain limited try to make sure that the language is as understandable rights, then whatever rights are not specified are automat- and unambiguous as possible. If an author is to be paid ically reserved to the grantor.9 This is why listing certain an advance for a novel, for example, the exact dollar rights in an “all rights” conveyance contract can be dan- amount and payment due date should be clearly stated, gerous, unless one includes the phrase, “including within addition to whether or not the payment is “nonrefund- out limitation,” before the list of enumerated rights being able,” or what (if anything) the advance is contingent conveyed. For example, stating: “Artist conveys all rights upon (for example, if payment of the advance is contin- to the Work, including for use in television and film,” is a gent upon the editor’s “acceptance” of the book, the dispute-prone phrase where the grantor could argue that author might not be too happy when he devotes a year to television and film rights are the only rights that were working on the book, turns it in, and suddenly finds out conveyed. The following phrase would be far more pro- that the publisher does not have to pay him anything). tective of the acquiring party’s rights: “Artist conveys all rights to the Work, including without limitation, for use Royalties can be wickedly deceiving. A 10 percent in television and film.” royalty off the gross revenues might be far better than a

66 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 25 percent royalty off “net profits,” for example, because 3. Defendants’ biggest financial windfall came from licensing the “net profits” may never be realized if the project is not famous song Be My Baby for use in the motion picture Dirty Danc- ing. “profitable” (as determined by the acquiring party’s accountants). If “net profits” is going to be mentioned 4. It is possible that sympathy played a role in the lower courts’ decisions. For instance, when the Ronettes agreed to the original anywhere in the contract, you are in for one of the thorni- contract, they did not have the advice of counsel, and the agree- est drafting battles you will ever face in trying to clearly ment form used—a form which took all rights to the music—was define that term. For instance, does the acquiring party of the type widely used by music producers of the era. As more get to deduct office overhead, interest on any money and more producers of that time grew rich, while the artists themselves earned little or nothing, that type of “all rights” form con- advanced on the project, promotional copies, or advertis- tract came under fire by some as an unconscionable way to rob ing from the revenue stream before calculating whether the artists of the fruits of their creative labors and talents. Thus, or not a “profit” has been made? If so, the artist might when the lower courts granted to the plaintiffs 50% of all income never see a dime in “net profits,” even if the project derived from synchronization licenses, it is possible that sympathy for the plaintiffs could have been a motivating factor in mak- makes millions of dollars. This is how movie studios, for ing such an award. The Court of Appeals even hinted at such instance, can get away with full-page ads proudly declar- when it reversed the lower courts’ decision, by stating: “We real- ing how “Movie X” just grossed $300 million when it cost ize that our conclusion here effectively prevents plaintiffs from only one-third of that to make, yet deny payments to any sharing in the profits that defendants have received from synchronization licensing. However sympathetic plaintiffs’ plight, we can- of the “net profit” participants. not resolve the case on that ground under the guise of contract construction.” Grant of Rights: Try not to allow a simple grant of 5. “The unconditional transfer of ownership rights to a work of art rights clause where more specificity is needed. For exam- includes the right to use the work in any manner.” Pushman v. ple, if a photographer grants “electronic rights” to his New York Graphic Soc. 287 N.Y. 302, 308 (1942). See also Boosey & pictures, define exactly what is encompassed by that Hawkes Music Publs. Ltd. v. Walt Disney Co. (145 F.3d 481 [2d Cir term. Does that include CDs, the Internet, use in televi- 1998]), where the plaintiff granted rights in a certain musical composition to The Walt Disney Company for use in the film Fantasia, sion documentaries and/or digital databases (keep in including the “right, license, privilege and authority to record [the mind that the “World Wide Web” is different from the composition] in any manner, medium or form.” In spite of this more expansive “Internet”)? open-ended grant of rights, the plaintiff sued after Disney used the song in video-cassette and laser disc versions of Fantasia, argu- In addition, carefully define exactly how an artistic ing that the agreement did not explicitly provide for distribution work can be used. If you are licensing some magazines in these new technological mediums. The United States Court of for use in a film, for example, it is wise to pin down Appeals for the Second Circuit, however, held that absent any express language to the contrary, Disney had the rights to use the exactly how they will appear and be used. Otherwise, music in those mediums. you could find the magazines being defamed or placed in 6. The Court, quoting from Breed v. Insurance Co. of N. Am., 46 N.Y.2d an undesirable context. (Do you really want an actor 351, 355 (1978), rearg. den., 46 N.Y.2d 940 (1979) stated that a con- using the cover of your client’s magazine as a substitute tract is “unambiguous” if the language has “a definite and precise for toilet paper?) meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion.” Conclusion 7. See also, R/S Assoc. v. New York Job Dev. Auth., 98 N.Y.2d 29, 32 (2002); and W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157, 162 The lesson here is that a healthy dose of paranoia in (1990). entertainment contract drafting can often save a client’s 8. Quoting from Slamov v. Del Col. (79 N.Y.2d 1016, 1018 [1992]), the interests down the road. It is always best to expect the Court stated, “The best evidence of what parties to a written unexpected out of a deal, be skeptical of the other side’s agreement intend is what they say in their writing.” motives and intent, and to imagine the world of what- 9. See e.g., Warner Bros. Pictures v. Columbia Broadcasting Sys., 216 F.2d could-go-wrong possibilities. Particularly in the face of a 945, 948 (9th Cir 1954), cert denied (1955); see generally Cohen v. society which tends to scoff at the legal profession’s Paramount Pictures Corp., 845 F.2d 851 (9th Cir 1988). “over-complication” of everything, we as lawyers have to 10. In Burnett v. Warner Bros. Pictures, for example, the plaintiff had resist the urge to skimp on our writing, where doing so made an “all rights” assignment to his play, that was later adapted into the classic movie, Casablanca. The Court of Appeals held would take away the extra emphasis and clarification for the defendant Warner Bros., and stated that if the plaintiff that a contract requires and the protection that our client playwright had intended to retain certain rights, then “specific needs. A few additional words added to a contract, like clauses to that effect should have been included in the agree- “whether now known or hereafter devised” can make or ment.” (67 N.Y.2d 912 (1986), aff’g 113 A.D.2d 710, 712-13 (1st Dep’t 1985)). break a client’s future.

Michael L. Baroni is In-House Counsel for PAIX.net Endnotes (one of the world’s primary Internet hubs), formerly 1. As an English major who wrote a senior thesis on semantic con- general counsel to Henry Holt book publishers, and struction and meaning in poetry, I was particularly preoccupied attorney for General Media. He has published over 60 with these thoughts. articles on entertainment and Internet law topics. 2. Greenfield v. Philles Records, Inc., 2002 N.Y. Int. 0118 (Oct. 17, 2002).

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 67 Any “Copyright” for Litigants? By Alan J. Hartnick

Copyright protects expression, but certain matters The Clerk of the Court is directed to are exempt from copyright by reason of public policy maintain the confidentiality of any doc- and therefore are part of the public domain. An exam- uments and transcripts of testimony ple is “the law,” in which it is self-evident that the pub- filed in accordance with the above. lic must have access and the right to know. As stated in Where possible, only CONFIDENTIAL the recent Veeck case, “‘the law,’ whether articulated in portions of the filings with the Court judicial opinions or legislative acts or ordinances, is in shall be under seal. the public domain and thus not amenable to copy- At the point of trial, we are in the realm of the inter- right.”1 section of privacy, trade secrets, copyright and confi- Litigation involves expression. Briefs are expressive dential information, all of which may impinge on the speech. Can one copyright a brief? Certainly a brief is public’s right to know and the media’s rights under the an “original work of authorship,” but who owns the First Amendment. brief—the client or the lawyer? Most lawyers would The protection sought by sealing goes beyond the believe that a brief is part of the public domain and denial of the right to reproduce, the essence of copy- would not object to use by others. After all, courts right, and is a denial of access. The only copyright anal- require legal papers in order to function. ogy is the circumvention of copyright protection sys- As to such practice, Professor Stephen R. Barnett of tems, for which there is a prohibition of access to the the University of California’s Boalt Hall School of Law technological measures, as provided for in Chapter 12 has placed a copyright notice on his court filings.2 Pro- of the U.S. Copyright Act. fessor Barnett states: “When you file a brief, you dedi- Sealing a judicial record essentially gives more than cate it to the public for use in litigation. There is a tradi- copyright protection to those who seek it. The tension is tion of copying the briefs freely.” between a private trial, as opposed to a public tax-sup- Litigation involves, among other things, the trial, ported system. Can litigators obtain a more severe form arguments, briefs, witnesses, motions and various doc- of “copyright” protection? uments obtained through discovery—some of which In Jessup v. Luther,4 the intervenor newspaper documents are used in the trial. As to certain docu- moved to unseal a settlement agreement. In a brilliant ments, an order of protection3 may be sought, thereby opinion by Judge Richard A. Posner, he reviewed the restricting access to such documents. interest of secrecy in a judicial record: Protective orders can be long and detailed. Often The general rule is that the record of a they contain the following language: judicial proceeding is public. Press- If CONFIDENTIAL or HIGHLY CON- Enterprise Co. v. Superior Court, 464 U.S. FIDENTIAL materials are to be filed 501, 509-10 (1984); United States v. Ladd, with the Court in connection with any 218 F. 3d 701, 704 (7th Cir. 2000) . . . Not proceedings herein, they shall be filed only do such records often concern with the Clerk of the Court in sealed issues in which the public has an inter- envelopes prominently marked with est, in which event concealing the the caption of the case and the follow- records disserves the values protected ing notice: by the free-speech and free-press clauses of the First Amendment, but also the THIS ENVELOPE CONTAINS public cannot monitor judicial perform- CONFIDENTIAL DOCU- ance adequately if the records of judi- MENTS SUBJECT TO A PRO- cial proceedings are secret. Union Oil TECTIVE ORDER AND IS Co. v. Leavell, 220 F. 3d 562, 567-68 (7th NOT TO BE OPENED NOR Cir. 2000); United States v. Eppinger, 49 THE CONTENTS THEREOF F.3d 1244, 1252-53 (7th Cir. 1995) . . . TO BE DISPLAYED OR These considerations, however, support REVEALED EXCEPT AS a strong presumption rather than an DIRECTED BY THE COURT. absolute rule. When there is a com-

68 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 pelling interest in secrecy, as in the case in legal transcripts or opinions. To hold of trade secrets, the identity of inform- that such originally copyrighted materi- ers, and the privacy of children, por- al becomes somehow dedicated by use tions and in extreme cases the entirety in the courts would permit the unravel- of a trial record can be sealed. Citizens ing of the fabric of copyright protection. First National Bank v. Cincinnati Ins. Co., If defendants’ theory were accepted, 178 F. 3d 943, 945 (7th Cir. 1999) . . . The James Joyce’s Ulysses, for example, interest in secrecy is weighed against would lie within the public domain the competing interests case by case. merely because the United States prose- Central National Bank v. United States cuted the book, unsuccessfully at that, a Dep’t of Treasury, 912 F. 2d 897, 900 (7th generation ago. Defendants cite no Cir. 1990) . . . authority to support the position, and I find it without merit. 7 Judge Posner held that: “Documents in judicial files are presumptively open to the public and neither the mag- To litigate and to preserve bona fide confidential istrate judge nor any of the parties has given us any information settlement agreements and trade secrets reason to think the presumption might be rebutted in may require a protective order and sealing. These mat- this case. The order of the district court is therefore ters are very different from confidentiality provisions reversed with directions to grant the relief sought by that forbid victims to talk about their experiences. the intervenor.” Litigants and their clients must heed the admonish- Some judges restrict protective orders in favor of ment that the request for a protective order or sealing supporting the concept of an open court. Judges are must show that a defined and serious injury will result now likely to limit secrecy in open court. South Caroli- from lack of secrecy, and that the court’s response na’s ten active federal judges have unanimously voted should be as narrow as possible.8 Only in that way may to ban secret legal settlements, stating that such agree- the judicial public domain be preserved. I suggest that ments made the court complicit in hiding the truth it is the lawyer’s duty to advise the client of the need about hazardous products, inept doctors and sexually for restraint, which can be a very tough job! abusive priests. Michigan has a similar rule, which 5 unseals secret settlements after two years. Endnotes We live in an age of information, so that clients 1. Veeck v. Southern Building Code Congress Int’l Inc., 293 F.3d 791, regard anything of business value, whether formal 796 (5th Cir. 2002). trade secrets, copyrighted works, confidential or com- 2. Intellectual Property Strategist, December 2001 at p. 9. mercial information or not. Settlement agreements, like 3. Rule 26(c), F.R.C.P. most arbitration awards and discovery materials, are 4. 277 F.3d 926, 927 (7th Cir. 2002). 6 private documents, and there is no judicial decision. 5. New York Times, Sept. 2, 2002 at pp. A1 and A13. However, there can be no guarantee of secrecy if there 6. Jessup, note 4, at 927. is an open trial. 7. Marvin Worth v. Superior Films Corp., 319 F. Supp. 1269, 1270 Certainly the use of a copyrighted work in a legal (S.D.N.Y. 1970). document does not dedicate it to the public. As Judge 8. Moore’s Federal Practice 3D, §26.102(1) at 26-246. Morris E. Lasker observed: Without determining whether defen- Alan J. Hartnick is a partner in the New York City dants in fact took the language in ques- law firm of Abelman, Frayne & Schwab, former Presi- tion from transcripts of trials or opin- dent of the Copyright Society of the U.S.A. and Chair ions, I find unpersuasive the contention of the Copyright and Trademark Committee of the that the use of such material, if origi- Entertainment, Arts and Sports Law Section of the nally copyrighted (as is undisputed New York State Bar Association. here), is rendered innocent by inclusion

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NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 69 The New German Law on Copyright Contracts— Is German Copyright Law Going Socialist? By Alexander R. Klett

On March 22, 2002 the German parliament passed a new sentence saying that an additional aim of Copy- new law amending the Urheberrechtsgesetz (German right Law is “to secure an adequate compensation of Copyright Act).1 The new law was entitled an Act “to the author or other creator of a protected work for the Improve the Contractual Situation of Copyright Owners use of the work.” The details of what this rather general and Performing Artists” (Gesetz zur Stärkung der ver- clause is about are found in sections 32 and 32a of the traglichen Stellung von Urhebern und ausübenden Künst- amended Act. lern).2 This Act came into force on July 1, 2002. According to section 32 of the new Act, the creator Although this may not appear to be particularly note- of a work is entitled to an adequate compensation. It worthy, particularly to U.S. intellectual property needs to be pointed out, however, that this section 32 lawyers, it is important to beware. The new German only applies to the contractual relationship between the Act did not merely lead to marginal amendments to the creator and his immediate licensee, and not between the Copyright Act. Rather, to a certain extent, the Act does creator’s licensee and any sublicensees. Yet, since Ger- away with the freedom to contract for license agree- man copyright law does not have a work for hire doc- ments between the author of a work and his licensee. It trine, this issue can arise—at least theoretically—in con- may be a somewhat small relief to know that things nection with every single work created, and even in could have been worse, and that the bill was mellowed employment relationships. The question thus is: When down considerably during the legislative process.3 The exactly will an agreed compensation be considered to new provisions in the Act still give authors the possibil- be “adequate”? According to section 32 paragraph 1 of ity to have a court of law judge whether a license fee the Act, such adequacy may be determined in three dif- agreed upon is “adequate” or not. This is an absolute ferent ways: novelty in German copyright law. It also leads to some uncertainty for the time being. Unfortunately, the Act a) The general rule is that the creator of a work will does not contain clear guidelines as to when exactly a receive the license fee contractually agreed upon fee will be considered to be inadequate. between the parties. This is not the only new provision in the German b) If no license fee has been agreed upon, an “ade- Copyright Act. The amendments also include changes quate compensation” will be considered to have to the so-called “best-seller clause” to the benefit of cre- been agreed to (and will then be owed).5 ators. These changes, introduced into the Copyright Act of a nation which constitutes one of the two most c) If a license fee that is not “adequate” has been important foreign markets for the U.S. entertainment fixed in the agreement, the creator of the work industry, may come as a surprise. They appear to have has the right to ask her licensee to agree to a a “socialist” touch to them, at least at first glance. This modification of the agreement which will grant article will try to shed some light on the changes to the creator an adequate compensation. If the copyright law in Germany brought about by this Act, licensee does not agree to a modification of the which purpose was to protect weak authors and cre- agreement the creator may bring a lawsuit ators against the bargaining power of the parties they against the licensee in which she can ask for a contract with. As the legislative materials to the first modification of the agreement and at the same draft of the bill stated: “This bill wants to correct the time for payment of the difference between the economic and organisational inferiority of creators vis- adequate amount of compensation and the à-vis the initial exploiters of their works.”4 amount agreed. If she is successful, the court decision will modify the remuneration terms of the agreement, and order the defendant to pay “Adequate Compensation” such difference. Undoubtedly the most important change to the But when is the license fee “adequate”? Section 32 German Copyright Act therefore is the introduction of paragraph 2 of the amended Act says that the license sections dealing with “adequate compensation” to cre- fee will be considered to be adequate if, at the time the ators owed by licensees. These changes were the most agreement is concluded, it is “in line with good faith controversial ones during the legislative process. Sec- license fees generally paid in business relationships tion 11 of the German Copyright Act now includes a considering the kind and extent of the licensed rights.”

70 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 Factors to be taken into account include all circum- Rather, it modifies and extends the existing so-called stances of the license in question, in particular the dura- “best-seller rules” under the old section 36. Under this tion and the time of the use of the work by the new section, if a creator of a work concludes a license licensee.6 This language is evidently not clear-cut, but agreement and the agreed-upon license fee later turns will give courts some leeway to decide on adequacy in out to be “noticeably inadequate” compared to the a particular case at issue. This leads to some degree of turnover generated by the licensee in using the work, uncertainty in Germany in this respect for the time then the licensee will be forced to agree upon an being. Such uncertainty will continue for as long as no amendment to the contract. Such amendment will then sufficient body of caselaw has developed with respect have to grant the creator an additional adequate share to this question.7 in the turnover generated by the licensee. For parties not willing to live with this uncertainty, It is irrelevant under the express wording of the the new Act offers two ways to reduce the risk of bat- new Act as to whether the parties anticipated or could tles in court. If the license fee is set on the basis of have anticipated the amount of the turnover generated. remuneration contained in a collective bargaining The main difference in the language of this new section agreement, there will be no claim for the creator under 32a paragraph 1 compared to the old section 36 para- section 32. Alternatively, the new Act offers the possibil- graph 1 is the wording “noticeably inadequate” (auffäl- ity for associations of creators and associations of liges Missverhältnis). Under the old Act additional com- licensees or single licensees to agree upon so-called pensation was owed only in cases in which the license “compensation guidelines” (gemeinsame Vergü- fee was considered to be “grossly inadequate” (grobes tungsregeln). Amounts of remuneration contained in Missverhältnis) and unexpectedly so,8 whereas now it such guidelines will also not be challenged in court. will only have to be “noticeably inadequate.” In cases in which neither one of these two ways out In the past, courts have held that even if the “ade- apply, it remains to be seen how courts will interpret quate” compensation was more than twice the amount the “good faith license fee which is generally paid in actually agreed upon between the parties, it was not business relationships considering the kind and extent “grossly inadequate.”9 Courts did find “gross inadequa- of the licensed rights.” Judges and copyright scholars cy,” however, in cases in which the agreed compensa- have indicated that if a license fee is in line with what is tion was only 18.95 percent or 35.26 percent of the generally paid to a licensor for the kind of license in amount which would have been adequate as deter- question, it will most likely also be in line with “good mined by the court.10 The legislative documents to the faith.” However, one example cited in the legislative new Act seem to suggest that a difference of 100 per- documents in which this may not be the case is the cent, or even less, between the amount agreed upon remuneration paid to translators of literature. In this and the adequate amount will constitute “noticeable respect, the legislators were clearly of the opinion that inadequacy.”11 However, judges as well as some copy- the customary compensation paid to such translators so right scholars and practitioners seem to take the view far has been inadequate. that no clear figure can be defined and that every case will have to be decided based on the individual facts. The German legislators tried to make the new pro- Consequently, here again, a fair degree of uncertainty visions in the German Copyright Act airtight. Thus, will remain until there is a sufficient body of caselaw contractual clauses trying to contract out the new sec- dealing with the new “best-seller provision.” tion 32 of the Act will be held as null and void, and as will be shown below, the consequences of the new pro- There is one main difference between section 32 visions also cannot be detoured by a choice of law and section 32a: Unlike section 32 of the new Act, sec- clause. tion 32a will not only apply between the creator of the work and its immediate licensee. If the licensee has In contractual relationships in which section 32 granted sublicenses, and the noticeable inadequacy applies, it is therefore advisable to include very detailed results from the turnover of a third party (i.e., a subli- language in the agreement describing the circumstances censee or sub-sublicensee) such third party will be of the grant of the particular license. This should later directly liable to the creator under section 32a. In this help to provide arguments as to why a certain agreed- case the (first) licensee will not owe any additional upon compensation is adequate in a specific case. amounts to the creator.

Section 32a—“Additional Participation by the As is the case with section 32, claims under section 32a can be safely avoided only via the application of Copyright Owner in Profits Generated” collective bargaining agreements or agreed-upon com- Unlike section 32 of the Copyright Act, the new sec- pensation guidelines, provided that they contain tion 32a is not entirely new to German copyright law. detailed clauses regarding the amounts payable to the

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 71 creator in a “best-seller case.” Finally, just like section wording of this provision does not limit the use rights 32, section 32a also cannot be contracted out. granted by the creator of the underlying work to the film producer in the film production agreement. Under Applicability of Sections 32 and 32a— the new Act, the author will automatically grant to the other party the exclusive right to turn the underlying Choice of Law Clauses work into a movie, either in unchanged or in modified According to section 32b of the Act, the new rules form, and to use the movie as well as translations of it in sections 32 and 32a will automatically apply in two and other modifications to the movie by any known scenarios: means of use, unless the parties expressly agree other- 12 a) for cases in which German law would apply to wise. the license agreement if the contract did not con- However, ancillary rights, which do not constitute tain a choice-of-law clause, and an integral part of using the movie as such (such as b) for cases in which the object of the license agree- merchandising rights), will still have to be expressly ment is significant uses of the licensed work in granted by the creator in future contracts relating to Germany. film production. These rights will continue not to be automatically included in such film production agree- It will thus generally not be possible to avoid the ments. consequences of the new Act by trying to agree on a choice-of-law clause. Even if the German legislature It should be pointed out that the new sections 32 thus tried to close any loopholes in the new Act, it and 32a also apply to creators of motion pictures—in appears unclear whether foreign courts will apply such particular the director of a motion picture—as well as to rules of German copyright law. However, under the owners of neighbouring rights in motion pictures. They new Act, if a license agreement is governed by a foreign are therefore also entitled to have their agreed compen- law combined with a foreign forum chosen in the agree- sation reviewed in court as outlined above. ment, the foreign judge would, at least in theory, have to apply sections 32 and 32a of the German Copyright Application of the New Provisions in the Act Act in a section 32b scenario, in addition to the remain- The new provisions in the German Copyright Act ing provisions of the respective national copyright law. generally do not apply to contracts concluded before Whether a federal judge in the U.S., for example, would March 28, 2002. However, section 32a will apply to any be willing to do so, appears somewhat questionable. “best-seller case” under pre-existing agreements, the effects of which happened after March 28, 2002. In other Agreed Compensation Guidelines— words, if the disproportionately high revenues by the Arbitration Panels licensee were generated after March 28, 2002, an additional remuneration under section 32a will be owed. The new sections 36 and 36a also contain detailed Furthermore, section 32 already applies to all contracts provisions about the procedure to follow in setting up concluded on or after June 1, 2001, provided that the agreed compensation guidelines between associations licensed right was or is used after March 28, 2002. of creators and licensees, and arbitration rules should the parties not be able to agree on such rules. There is Finally, it needs to be pointed out that sections 32 no obligation to agree on compensation guidelines. If and 32a also apply to performing artists. The time limits one party so requests, there will be an arbitration proce- for application of these sections to performing artists dure, which will end with a suggestion by the arbitra- are the same as for authors and other creators of pro- tion panel for an agreed guideline. If one of the parties tected works. objects to this suggestion within a period of three months, however, it will be null and void. Suggestions Conclusion by an arbitration panel will thus not be binding. The new Act offers the procedure nevertheless, with the aim The Act to Improve the Contractual Situation of of offering the parties one option to avoid uncertainty Copyright Owners and Performing Artists of March 22, and court battles via compensations agreed to under 2002 has brought some major changes to German copy- such guidelines. right law. These changes have the unpleasant side-effect of creating some uncertainty for the next few years until German courts, and, in particular the German Supreme Changes to the Sections on Motion Pictures Civil Court (Bundesgerichtshof), will have had a chance Section 88 of the German Copyright Act on film to provide some guidance as to how the new provisions production agreements was modified to the benefit of will be applied and interpreted. For the media industry, film studios. Unlike the previous wording, the new there are likely going to be some changes in certain

72 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 areas. For example, according to the legislative docu- the particular service happens to be one for which a compensa- ments, literary translators are one group of “under- tion cannot be expected). Such compensation will then be in an amount which will be common or customary considering the paid” creators in need of help. It remains to be seen respective circumstances. whether courts find other such groups of creators. It is 6. The German text reads: “Im übrigen ist die Vergütung also not clear yet whether the outcry during the legisla- angemessen, wenn sie im Zeitpunkt des Vertragsschlusses dem tive process, particularly by German publishing houses, entspricht, was im Geschäftsverkehr nach Art und Umfang der was appropriate, and whether the new provisions will eingeräumten Nutzungsmöglichkeit, insbesondere nach Dauer indeed lead to considerably higher costs for them. For und Zeitpunkt der Nutzung, unter Berücksichtigung aller Umstände üblicher- und redlicherweise zu leisten ist.” the time being however, we are confident that German 7. German copyright scholars have tried to shed light on the ques- courts will find a balanced way to interpret the new tion of whether there can be general guidelines for defining provisions with which both creators and the media and “adequacy.” See, e.g., Gerhard Schricker, Zum Begriff der entertainment industry can ultimately live. angemessenen Vergütung im Urheberrecht—10% vom Umsatz als Maßstab? [Reflections on the Term “Adequate Compensation” in Copyright Law—Can 10% of Turnover be the Guiding Line?], 2002 Endnotes GRUR 737. He suggests that there cannot be a general rule according to which, for example, a compensation to the author 1. Gesetz über Urheberrecht und verwandte Schutzrechte (Urhe- in an amount of 10% of the turnover generated by the licensee berrechtsgesetz) [Act on Copyright and Neighboring Rights] of will be “adequate.” He takes the view that, indeed, every single Sept. 6, 1965 (BGBl. I S. 1273) as amended. case will have to be decided on its own facts and circumstances, 2. Gesetz zur Stärkung der vertraglichen Stellung von Urhebern and that the compensation which will be found to be “ade- und ausübenden Künstlern [Act to Improve the Contractual Sit- quate” in a specific case may be well below 10% of the turnover uation of Copyright Owners and Performing Artists] of Mar. 22, generated by the licensee, but may also be higher. 2002 (BGBl. I S. 737). 8. Schricker, Urheberrecht, § 36, at 12 (2nd ed. 1999). 3. See Haimo Schack, Urhebervertragsrecht im Meinungsstreit [The 9. Bundesgerichtshof [Supreme Court], 1996 GRUR 763, 765 Dispute on Copyright Contract Law], 2002 Gewerblicher Rechtss- (F.R.G.). chutz und Urheberrecht [GRUR] 853. He points out that, according to the original wording of the bill, authors would have had 10. Bundesgerichtshof [Supreme Court], 1991 GRUR 901, 903 a direct and immediate legal claim to an “adequate compensa- (F.R.G.). tion” for the use of their works; furthermore, the bill would 11. Bundestags-Drucksache 14/8058, at 19 (2002). have provided for an obligation to set up so-called agreed compensation guidelines. As will be shown below, this is no longer 12. This section now reads: “Gestattet der Urheber einem anderen, the case in the provisions of the Act. sein Werk zu verfilmen, so liegt darin im Zweifel die Einräu- mung des ausschließlichen Rechts, das Werk unverändert oder 4. Bundestags-Drucksache 14/6433, at 9 (2002). The bill continues unter Bearbeitung oder Umgestaltung zur Herstellung eines by stating: Filmwerkes zu benutzen und das Filmwerk sowie Übersetzun- Free-lance creators and performing artists are legally gen und andere filmische Bearbeitungen auf alle bekannten considered to be entrepreneurs. In fact, however, they Nutzungsarten zu nutzen.” can usually be compared more to salaried employees. Unlike other free professions such as lawyers, doctors and architects they do not benefit from a legal fee Alexander R. Klett is an intellectual property law structure which grants them an adequate compensa- attorney with Gleiss Lutz in Stuttgart, Germany. He tion for their work, which compensation will general- studied law at the Universities of Passau, Germany, ly also be in line with the respective economic frame- Lausanne, Switzerland and Tübingen, Germany. He work. Rather, they are subject to the unequal forces on the market, unless they belong to the small group of got his law degree from the University of Tübingen in stars (approximately 1.5%) who have sufficient bar- 1996. He subsequently got an LL.M. degree from the gaining power . . . University of Iowa in 1997 and a doctorate degree in 5. This is an idea which is not new to German civil law at all. law (Dr.jur.) from the University of Tübingen in 1998 Under §§ 612 and 632 BGB [German Civil Code] there is a gen- for a dissertation on comparative U.S.-German copy- eral rule for employment, work and service agreements, accord- right law. He was admitted to the German bar in 1999. ing to which a compensation will automatically be taken to have been tacitly agreed upon (unless, in exceptional circumstances,

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NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 73 Pro Bono Update By Elisabeth K. Wolfe, Pro Bono Committee Chair

Get Inspired to Volunteer! • Managers in the Arts and Entertainment Welcome to the first issue of the EASL Pro Bono Industry Update. As the Chair of the Pro Bono Committee, I am This transitional CLE workshop is appropriate for delighted to be a part of this team effort dedicated to attorneys seeking an understanding of managers raising awareness about important issues in the com- in arts and entertainment industries. Topics munity that we as a Section can help address. include managerial roles, functions, comparisons The newly established Pro Bono Committee plans to other advisors, and negotiating a management to publish an Update three times during the year and agreement. offer articles pertaining to New York-based non-profit • Talent Contract Basics for the Film Industry organizations and the pro bono opportunities they offer. In addition, as a Committee, we want to make it enjoy- This transitional CLE workshop is appropriate for able and rewarding for our members to fulfill the state attorneys seeking an overview of talent contracts Bar’s aspirational goal that every attorney give at least in the film and theatre industries. Topics include 20 hours of pro bono service per year, and/or make a overview of the industry, contract basics, and tal- gift. We strongly believe that pro bono work is not only ent agencies such as SAG, AFTRA, and WGA. a professional responsibility, but it can be one of the • Sports Licensing Basics most gratifying experiences in the life of a lawyer. This transitional CLE workshop is appropriate for The EASL Pro Bono Update is complimentary for attorneys seeking an overview of sports licensing. all Section members and your participation as a mem- Topics include basic principles of trademark law, ber of the Pro Bono Committee and as a contributor to league issues, licensing, marketing, and labor/ this newsletter is welcome. For more information about management issues. the Committee or any of the pro bono opportunities listed below, please e-mail me at [email protected]. In • Trademark Basics addition, please check out our Web site (www.nyeasl This transitional CLE workshop is appropriate for .org) which contains our guidelines for contributors to attorneys seeking an overview of trademark law. The Phil Cowan Memorial Scholarship. Topics include basic principles of trademark law, unfair competition, international and domestic Volunteer for the Next VLA Clinic trademark protection, and trademarks and the Volunteer Lawyers for the Arts (VLA) has been Internet. helping artists and arts organizations with their arts- • Legal Issues in the Film Industry and entertainment-related legal issues for nearly 30 years. EASL has teamed up with VLA to sponsor two This transitional CLE workshop is appropriate for EASL legal clinics, one that took place on February 12 attorneys seeking an overview of film industry- and the next which is scheduled for May 14, 2003. specific issues. Topics include acquiring underly- EASL members volunteer at the clinic in two half-hour ing rights, securing appropriate releases and shifts from 4-7 p.m. and are matched with clients who clearances, working with union talent, the struc- are seeking advice on their arts-related issues. The clin- ture of the writer’s agreement, litigation risks, ics take place at the VLA offices, which are located in and insurance considerations. The workshop will The Paley Building at 1 East 53rd Street, 6th Floor. If also provide a brief overview of contract and you are interested in volunteering for the clinic, please copyright law. e-mail me. You can also learn more about VLA by visit- • Legal Issues in the Sports Industry ing its Web site at www.vlany.org. This transitional CLE workshop is appropriate for Volunteer to Teach and Receive CLE credit attorneys interested in an overview of attorney practice issues in the sports industry. Topics Are you interested in teaching? VLA is looking for include unions and management, the roles of instructors for the following CLE classes: attorneys, agents, and managers, player disciplinary issues, and licensing and marketing.

74 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 • Legal Issues in the Music Industry literacy into the experience of learning and mas- tering the skills of ice hockey. In its sixteenth sea- This transitional CLE workshop is appropriate for son, it will have more than 175 inner city youth attorneys seeking an overview of music industry- enrolled in the program at no cost to the partici- specific issues. Topics include name ownership, pants. managers, agreements, publishing, royalties, record companies, and distributors. The work- • Population Served: Currently, Ice Hockey in shop will also provide a brief overview of con- Harlem provides educational and social services tract and copyright law. to over 175 Hispanic and African-American children between the ages of 4-17 living throughout Get Your CLE Credit by Taking on a VLA Case! the Harlem community. About 90 percent of the participants are male and 10 percent are female. VLA was recently approved to give Professional 55 percent of the youngsters are of Hispanic her- Skills CLE credit to attorneys who do pro bono work. itage and 45 percent of the youngsters are of Credit for pro bono legal services shall be awarded in African-American background. Spanish is the pri- the following ratio: one (1) CLE hour for every six (6) mary language spoken by half of IHIH partici- 50-minute hours (300 minutes) of eligible pro bono legal pants. service. A maximum of six (6) pro bono CLE credit hours may be earned during any one reporting cycle. Based on City Council Profiles for Harlem Coun- CLE credit is not available to volunteer attorneys in the cil Districts 8, 9 and 10 there are 500,000 residents 501(c)(3) Incorporation program or the clinic. Newly living in the Harlem community. Of those resi- admitted New York attorneys may earn pro bono CLE dents 26 percent are 18 years or under, 19 percent credit solely for the purpose of carrying over pro bono are white, 32 percent are African American, 46 CLE credit to the following biennial reporting cycle in percent are Hispanic and two percent are Asian. partial fulfillment of the requirement for experienced About 41 percent of persons 25 and older lack a attorneys. high school diploma. Only 32 percent of elemen- tary-aged children are reading at or above grade level. In 1990, less than eight percent of residents Featured Organization: Ice Hockey in Harlem lived in owner-occupied housing. In 1996, 21 per- In each issue of the Pro Bono Update, we will fea- cent of residents were receiving public assistance. ture nonprofit organizations that we hope you will explore! For more information about Ice Hockey in • Programs and accomplishments: Today, Ice Harlem, visit its Web site at www.icehockeyinharlem Hockey in Harlem provides the opportunity for .org. children between the ages of 4-17, to engage in the challenging sport of ice hockey. The program Ice Hockey in Harlem is a not-for-profit communi- also provides access to a range of educational and ty-based youth organization that uses the dynamic social services. Participants spend one hour in a sport of ice hockey to promote academic achievement, mandatory classroom session and 1½ -2 hours on responsibility, teamwork, and most importantly life the ice each week. skills. The objective of the organization is to provide inspiration, encouragement and guidance to children In mandatory classroom sessions, volunteer teach- that leads to better life experiences, education and ers employ a user-friendly curriculum that uses hockey career opportunities at no cost to its participants. as a basis to explore other academic areas such as math, geography, writing, teamwork and social skills. On the • History: Established in the winter of 1987, Ice ice, teamwork, social skills and responsibility are Hockey in Harlem (IHIH) introduced the dynam- emphasized. ic sport of ice hockey to the economically challenged community of East Harlem. In its inaugu- The Social Work Department provides academic ral year, IHIH began with forty boys, between the case management, high school and college counseling ages of 7-17, eager to learn the game of ice hock- and preparation and assists in obtaining high school ey. In exchange for participation one night a week scholarships. This year eight students are attending pri- on the ice, all participants agreed to attend week- vate and parochial schools on scholarships provided by ly mandatory classroom sessions. In classrooms, IHIH. Counseling is offered and links with other agen- these IHIH pioneers were taught math, reading, cies assure additional services, for example, tutoring and geography using ice hockey, its history, cities and testing for children when needed. Mentors are and statistics as teaching tools. The program has recruited, trained, matched with students and offered always incorporated academic achievement and support by staff in planning activities with their students.

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 75 While adult volunteers serve as role models for gram have gone on to attend St. Lawrence University community service, senior participants in the IHIH pro- (2), Skidmore (2), the University of Massachusetts (1), gram are required to contribute time both within the Johnson and Wales (1), the State of New York Universi- organization and the wider community. Senior partici- ty System (5) and the City of New York University Sys- pants feed the homeless in the Salvation Army shelter. tem. IHIH provides counseling and assistance in com- They also conduct a clinic on Long Island for disabled pleting college applications. Program participants are children with a passion for ice hockey. The disabled currently employed at JP Morgan Chase, Citibank, Pru- children play on sleds, rather than on skates. The sen- dential Securities and other corporations as a result of iors also visit Ronald McDonald House and complete a introductions made through the program. Harlem-based clean-up project. It is through the dedication of over 60 trained vol- On the ice, throughout the winter, our volunteer unteer coaches, teachers, tutors and mentors who are coaches teach hockey skills, discipline and teamwork. mobilized weekly that IHIH is able to provide partici- There are 165 boys and 10 girls currently enrolled in the pants an enriched and rewarding experience at no cost. organization’s on-ice and classroom programs. In the This year there were 25 coaches and 15 classroom teach- boys’ program there are five divisions, based primarily ers. Two interns from Columbia University, The School on age. While the girls continue to practice and play of Social Work, provided social work services on a vol- with the boys, last year IHIH launched a curriculum- unteer basis. specific program aimed at girls eight years and older. IHIH covers the cost of time on the ice and supplies all We’re Exploring! ice hockey equipment. The Pro Bono Committee is actively exploring addi- Ice Hockey In Harlem has demonstrated for the tional entertainment- arts- or sports-related non-profit past 15 years that hockey can be successfully used to organizations based in New York State that could bene- attract children in Harlem to a program where partici- fit from a collaborative relationship with EASL. If you pants learn an exciting sport, focus on academic are interested in helping us with this search, please e- achievement, and have access to enhanced educational mail me at [email protected]. and career opportunities. Graduates of the IHIH pro-

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76 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 Upcoming VLA Programs

Since 1969, VLA has been the exclusive provider of direct and effective manner. Held from 4-7 p.m. on the pro bono legal services, education, and advocacy to the second and fourth Wednesday of each month, the clinic New York arts community. Through public advocacy, also provides volunteer attorneys with a low-time-com- VLA frequently acts on issues vitally important to the mitment option. Contact Aaron Hauser at (212) 319-2787 arts community—freedom of expression and the First ext. 11 to participate. Amendment being areas of special expertise and concern. We serve over 7,500 clients each year. You can get CLE Accredited Seminars involved and help in the following ways: VLA is pleased to announce that it has been approved by the New York State Continuing Legal Edu- VLA Legal Services cation Board to provide CLE credit for the following * CLE Credit for Pro Bono Work! transitional classes. For questions or to register for a workshop please call (212) 319-ARTS, ext. 10. All work- VLA has been approved to provide CLE credit for shops are held at VLA’s office in the auditorium of The pro bono legal services rendered. Credit for pro bono Paley Building, 1 East 53rd Street, Ground Level. legal services shall be awarded in the following ratio: one (1) CLE hour for every six (6) 50-minute hours (300 minutes) of eligible pro bono legal service. A maximum Call for Instructors of six (6) pro bono CLE credit hours may be earned dur- Please contact Alexei Auld, Director of Education at ing any one reporting cycle. Please contact Aaron (212) 319-2787 ext. 12. (See Pro Bono Update, pp. 74-75, Hauser, Pro Bono Coordinator, at (212) 319-2787 ext. 11 for further details). for more information. * CLE Credit: Areas of Professional Practice: * Pro Bono Case Placements 3 CLE credit hours By placing cases with volunteer attorneys, VLA • Nonprofit Incorporation and Tax-Exempt Status delivers pro bono legal services to low-income (per VLA • Contract Basics for Arts & Entertainment Profes- guidelines) individuals and nonprofit arts organiza- sionals tions. The VLA Case List is e-mailed on the 1st and 15th of each month to our volunteer attorneys and pro bono • Copyright Basics coordinators. Cases are available on a variety of issues • LLC, “C” Corp, or “S” Corp: Choosing the Right ranging from trademark, copyright, and other intellectu- Corporate Structure For Your Arts Business al property issues to nonprofit incorporation and 501(c)(3) status, and other matters of corporate forma- * CLE Credit: Areas of Professional Practice: tion to contracts and licensing agreements. Artists from 2.5 CLE credit hours every discipline utilize our services including: filmmak- • Trademark Basics ers, visual artists, playwrights, poets, directors, musi- • Managers in the Arts & Entertainment Industry cians, multi-media artists, graphic designers, independent curators, dancers, and actors. VLA requires that all • Talent Contract Basics for the Film Industry of its volunteer attorneys be covered by legal malprac- • Music Licensing Basics tice insurance, and advises our clients that the attorneys • Sports Licensing Basics must check for conflict of interest on each case before agreeing to accept it. If you would like to receive VLA’s • Legal Issues in the Sports Industry Case List or more information, contact Aaron Hauser, • Legal Issues in the Music Industry VLA Pro Bono Coordinator, at (212) 319-2787 ext. 11. VLA also holds a monthly New Volunteer Orientation. Please find upcoming dates posted on VLA Mediateart Program www.probono.net. VLA offers mediation training to arts professionals and attorneys for New York State Certification and pairs * Bi-monthly Legal Clinic artists with mediators to resolve arts-related disputes The VLA Legal Clinic is a bi-monthly forum for any outside the traditional legal framework. For more infor- VLA member to meet privately with an attorney to dis- mation contact Hilary Burt, VLA Coordinator of Media- cuss his or her arts-related legal issues. The clinic pro- tion, at (212) 319-2787 ext. 16. vides an opportunity for attorneys to advise clients in a

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 77 The Entertainment, Arts and Sports Law Section Welcomes New Members

Christopher B. Abbott David H. Faux Tom J. Koltis Lee A. Reynolds Vanessa Adams Michael N. Fleischman James G. Koutras Holly E. Rich Edna E. Addae Maria Foffe Lawrence M. Kramer Heidi M. Riviere Kaisha L. Alabi Sharon Fonseca Andrew E. Krents Brian P. Rohan Paul M. Aloy Nadene M. Forbes Adam Kriegstein Joanna Rose Christopher G. Anderson Kacey M. Foster E. Carlton Kromer Stephanie L. Rosenfeld Arlen M. Appelbaum Emily Frangos Scott B. Kuperberg Christopher Ross Justin Arcangel Barbara S. Friedman Anamaria Laguna-Dunn Stacy M. Rotner Michael A. Arcieri Alan Louis Friel Thomas M. Lancia Justin M. Ruggieri Robyn B. Aronson Darian M. Futrell Rachel Lapidus Stephen Kenneth Rush Gregory J. Auerbach Melissa R. Gassler Brian C. Laskiewicz William D. Ryan Jesse R. Ayala Mark W. Geisler Michelle B. Lee Richard H. Rybak Manavinder S. Bains Brian Giehl Edward Leung Virginia D. Ryker Ertemio R. Baratta Godfrey Gillett A. Thomas Levin Ariadne Katrina Sacharoff Steven Barrison Christine A. Giovannelli Christopher C. Loeber Alireza Abdulaziz Sachedina Jaime N. Bell Daniel Glantz LeAura Luciano Emil A. Samman Luigi Bianco Amy J. Goldrich Danah L. Ludvick Ronald B. Sann Dana Blackmon Eva Golinger William R. MacDonald Stefan G. Schick Madhuri P. Blaylock Nicole V. Gurkin Michael Marando Scott K. Seamon Richard Boyd Pamela L. Gurley Christian P. Martinen Joshua B. Selig Jeanne M. Boyle Rhea Paige Hamilton Patrick J. Maruggi Jennifer A. Sheaffer Clifton R. Branch John W. Hanson Edward M. McCoyd Bradley Silver Anne Briggs Anne E. Hardcastle Melissa Melzer Matthew D. Simon Brian Brown David Harrow Daniel Messeloff David M. Slater Bruce Anderson Brown Edwin I. Hatch Richard B. Mills-Robertson Samantha P. Smith David G. Bruder Michael Heitmann Maria Del Rosario Mirabal Darlene Y. Snell Niisha K. Butler Hans Jurgen Homann Mark Mohtashemi Craig M. Spierer Christopher R. Cabanillas Moses M.S. Howden Pierre Monfort Kevin Stemp Thomas A. Canova George P. Hoyt Rebecca Moodie Juan M. Suero Mellissa C. Carbone John M. Hughes Seon Joo Na Christina A. Svoboda Jeffrey Catanzaro Masato Imaizumi Jeffrey M. Nachem James S. Talbot Jessica W. Catlow Randall F. Inniss Deepak Nambiar Hisanari Tanaka Amy Chin Erika J. Inocencio Natalie M. Newman Andrew G. Tavel Adriana Ching Glenn I. Jackson Marissa Olsen Lauren Ann Tringali Robert V. Ciccone Eric Jacobson Jonathan W. Olson Mashawn Sherree Tucker Sophia Clark Heather D. Jenkins- Amy B. Ortner Christopher Turk Michael Comas Cunningham Ramon Osborne George Tzimopoulos Thomas A. Crowell Ashley W. Johnson Michael P. Overn Larissa R. Urcia Neha Dalal Michelle Johnson Peter Hosea Paretsky Emmanuelle Valade Doxia C. Dargaty Celeste D. Joseph Sheila Lee Pearson Erin Vestal Karlene A. Dennis Stacey D. Joslin Jonathan David Peek Shaun R. Von Knasick Thea M. DePinto Combs Barbara J. Kaplan Nicholas A. Penkovsky Brien M. Wassner Tiffany Dickson Ankur Kapoor Victor N. Piacente Brian P. Weinberg Deborah Drimmer Jonathan S. Katz Anthony T. Polvino Arthur S. Weiner Robert J. Driscoll David M. Kaufman Nicholas S. Preston Kimberly T. Whitfield Robert D. Dunne Wynne P. Kelly Rohit Punj Cheryl L. Wickham Pablo A. Echegaray Malik Angel Ketcham Jacob William Raddock David R. Williams Cenceria P. Edwards Alice H. Kim Vincent P. Rao James D. Williams John Ellis Krysten Marie Kimmett James R. Ray Lisa Williams Christian Errico Matthew Kline Ryan C. Reeves Kevin J. Wimmer Eric T. Ervin Jessica Klubnick Marc S. Reisler Stafford A. Woodley David J. Fair Gretchen L. Koehler Rochelle Andrea Renaud Suzy R. Yengo

78 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 NYSBABOOKS Limited Liability Companies

2002 Edition

This practical guide, written by Michele A. Santucci, enables the practitioner to navigate the Limited Liability Company Law with ease and confidence.

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• Tax Background • Dissolution • Differences Between the New • Merger and Consolidation York and Delaware LLC • Foreign Limited Liability Com- • Formation panies • Management of the LLC • Professional Services Limited • Voting by Members Liability Companies • Meetings of Members • Foreign Professional Service • Capital Contributions Limited Liability Companies and Finance • Miscellaneous LLCL Provisions • Members and Membership Interests PN: 4124 • The Operating Agreement List Price: $70 Mmbr. Price: $55

To order call 1-800-582-2452 or visit us online at www.nysba.org/pubs Mention code: CL1777 when ordering. New York State Bar Association

NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 79 Section Committees and Chairpersons The Entertainment, Arts and Sports Law Section encourages members to participate in its programs and to contact the Section Officers listed on the back page or the Committee Chairs for further information.

Broadcasting and Cable New Technologies Douglas P. Jacobs David G. Sternbach (Co-Chair) 600 Third Avenue 235 East 45th Street New York, NY 10016 New York, NY 10017 (212) 973-8910 (212) 210-9791 Continuing Legal Education Kenneth N. Swezey (Co-Chair) Cameron A. Myler 41 Madison Avenue, 34th Floorr 1 Chase Manhattan Plaza New York, NY 10010 New York, NY 10005 (212) 974-7474 (212) 530-5663 Pro Bono Copyright and Trademark Elisabeth K. Wolfe Alan J. Hartnick 25 Central Park West, Apt. 4E 150 East 42nd Street, 26th Floor New York, NY 10023 New York, NY 10017 (917) 769-4339 (212) 949-9022 Programs Fine Arts Kenneth A. Nick Judith B. Prowda 600 5th Avenue, 4th Floor 15 West 75th Street, Apt. 5C New York, NY 10020 New York, NY 10023 (212) 313-2416 Legislation Publications Steven H. Richman Elissa D. Hecker 32 Broadway, 7th Floor 711 3rd Avenue New York, NY 10004 New York, NY 10017 (212) 487-5338 (212) 834-0156 Literary Works and Related Rights Rights of Publicity, Privacy Jay Kogan and Merchandising 1700 Broadway Joshua R. Bressler New York, NY 10019 125 Broad Street (212) 636-5465 New York, NY 10004 (212) 558-7393 Litigation Peter A. Herbert Sports 500 5th Avenue, 33rd Floor Ayala Deutsch New York, NY 10110 645 5th Avenue (212) 921-8399 New York, NY 10022 (212) 407-8696 Membership Rosemarie Tully Theatre and Performing Arts One Suffolk Square, Su. 430 James Henry Ellis Islandia, NY 11749 36 Butler Road (631) 234-2376 Scarsdale, NY 10583 (914) 725-5514 Motion Pictures Mary Ann Zimmer Young Entertainment Lawyers 41 Madison Avenue, 34th Floor Jennifer Unter New York, NY 10010 101 West 73rd Street, Apt. 3A (212) 974-7474 New York, NY 10023 (212) 541-8641 Music and Recording Industry Daniel C. Marotta 277 Broadway, Su. 1310 New York, NY 10007 (212) 349-1200

80 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1

Recent Cases

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International Developments

New Legislation and Regulations

In the Law Reviews

Educational Programs Calendar

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NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 81 NEW YORK STATE BAR ASSOCIATION ENTERTAINMENT, ARTS AND SPORTS LAW SECTION

The New York State Bar Association’s Entertainment, Arts and Sports Law Section offers many ways to enhance your knowledge and expertise through committee involvement. Committee work allows you to network with other attorneys from across the state and gives you the opportunity both to research issues and to have a real impact upon the law. Committees are also outstanding avenues to achieve professional growth and recognition for your efforts.

Please consider me for appointment to the Entertainment, Arts and Sports Law Section Committees as indicated below.

Please send me information on membership in the Entertainment, Arts and Sports Law Section.

Committee Assignment Request

Please designate in order of choice (1, 2, 3) from the list below, a maximum of three committees in which you are interested.

___ Broadcasting and Cable ___ New Technologies ___ Continuing Legal Education ___ Pro Bono ___ Copyright and Trademark ___ Sports ___ Fine Arts ___ Programs ___ Legislation ___ Publications

___ Literary Works and Related Rights ___ Rights of Publicity, Privacy and Merchandising ___ Litigation ___ Theatre and Performing Arts ___ Membership ___ Young Entertainment Lawyers ___ Motion Pictures ___ Music and Recording Industry

Name

Firm

Office Address

Home Address

Office Phone No. Office Fax Home Phone No.

E-mail address

Please return this application to: Membership Services Department New York State Bar Association One Elk Street Albany, NY 12207 Telephone: 518/463-3200, ext. 5573

82 NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 NYSBABOOKS Entertainment Law

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A detailed index, charts and tables, and several sample contract forms help to make Entertainment Law an easy-to-use, indispensable reference tool.

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NYSBA Entertainment, Arts and Sports Law Journal | Spring 2003 | Vol. 14 | No. 1 83 Publication of Articles Entertainment, Arts and Sports Law Journal The Journal welcomes the submission of articles of timely interest to members of the Section. Articles Editor should be submitted on a 3 1/2" diskette (preferably Elissa D. Hecker The Harry Fox Agency, Inc. in WordPerfect or Microsoft Word) along with a 711 3rd Avenue laser-printed original and biographical information. New York, NY 10017 Please submit articles to: Section Officers Elissa D. Hecker Chair Jeffrey A. Rosenthal The Harry Fox Agency, Inc. One Liberty Plaza, 41st Floor 711 3rd Avenue New York, NY 10006 New York, NY 10017 Vice-Chair [email protected] Elissa D. Hecker The Harry Fox Agency, Inc. 711 3rd Avenue New York, NY 10017 Secretary Alan D. Barson 183 Madison Avenue, 19th Floor New York, NY 10016 Assistant Secretary Kenneth N. Swezey 41 Madison Avenue, 34th Floor New York, NY 10010 Treasurer Stephen B. Rodner 410 Park Avenue New York, NY 10022 WWW.NYEASL.ORG This Journal is published three times a year for members of the Entertainment, Arts and Sports Law Section of the New York State Bar Association. Members of the Sec- tion receive the Journal without charge. The views expressed in articles published in this Journal represent those of the authors only, and not necessarily the views of the Editor, the Entertainment, Arts and Sports Law Section or the New York State Bar Association. We reserve the right to reject any advertisement. The New York State Bar Association is not responsible for typo- graphical or other errors in advertisements. ©2003 by the New York State Bar Association. ISSN 1090-8730

Entertainment, Arts and Sports Law Section New York State Bar Association PRSRT STD U.S. POSTAGE One Elk Street PAID Albany, NY 12207-1002 ALBANY, N.Y. PERMIT NO. 155 ADDRESS SERVICE REQUESTED